Australian families have likely seen the last of mortgage bill hikes after a faster-than-expected fall in inflation late last year, according to economists who say cuts may even be on the horizon.

Figures published on Wednesday by the Australian Bureau of Statistics (ABS) showed annual headline inflation fell from 5.3 per cent to 4.1 per cent over the December quarter of 2023.

That’s well below the 4.5 per cent forecast by the Reserve Bank amid softer price increases for everything from goods like food and clothing to popular services such as hospitality and tourism.

Economists said the data all but cements another pause in interest rates when central bankers meet for the first time in 2024 in early February, and could even mean that rates have peaked.

Oxford Australia head of macroeconomic forecasting Sean Langcake said the next move is down, though it will come after a long pause.

“I wouldn’t be out there hanging any mission accomplished banners, but it’s now a question of how long we wait for the first cut rather than whether there’s another hike,” Langcake said.

Underlying inflation, which is watched closely by the Reserve Bank, was slightly more stubborn in the December quarter, coming in at 4.2 per cent, which does suggest price pressures linger.

But combined with December retail figures published on Tuesday, which showed a noticeable slowdown in consumer spending, the latest inflation data clearly depicts a slowing economy.

EY chief economist Cherelle Murphy said the RBA’s 13 rate hikes are working to cool prices.

“Mortgage holders can breathe a sigh of relief … the Reserve Bank has no reason to lift the cash rate next week,” Murphy said.

Inflation cools

The pace of price increases is cooling across a wide range of consumer categories, including essentials like groceries and utility bills.

Food inflation fell to 4.5 per cent in the December quarter, down from 4.8 per cent and the peak of 9.2 per cent a year ago (December 2022).

Fruit and vegetable prices even fell slightly over the most recent quarter, down about 0.2 per cent.

Elsewhere, electricity price growth has eased, rising 1.4 per cent over the period compared to 4.2 per cent in the September quarter.

Discretionary goods, such as clothing and furnishings, are also easing, driven in part by a surge in promotional activity as retailers competed for stretched consumer wallets over Christmas.

There were, however, some categories where price pressures intensified over the quarter, including insurance premiums, which rose 16.2 per cent annually, the most since 2001.

Rents also continue to be a pain point, rising 7.3 per cent annually over the quarter, which was only slightly lower than the 7.6 per cent recorded over the three months ended September.

Rate cuts on the horizon

Buoyed by easing inflation, a growing number of economists are now pencilling in interest rate cuts, some as soon as later this year.

Westpac chief economist Luci Ellis is expecting rate cuts “no earlier” than September.

“We expect that over coming months, further declines in inflation and soft outcomes in the real economy will give the board enough confidence that inflation will return to target on the desired timetable,” Ellis said.

“They will therefore have scope to reduce some of the current restrictiveness of policy.”

Commonwealth Bank chief economist Gareth Aird has pencilled in the first rate cut for September, expecting about 1.5 percentage points in easing by midway through next year.

“We firmly believe the next move in the cash rate is down,” he said.