The dire interest rate warning that Aussies won't want to hear (2024)

Mortgage holders could need to wait another year for much-needed interest rate relief - with the market and economists pushing back predictions of the RBA's first interest rate cut due to rising inflation.

The monthly inflation gauge increased for the second consecutive month, rising to 3.6 percent for the 12 months ending in April, up from 3.5 percent, according to the Australian Bureau of Statistics.

The 3.6 per cent growth in consumer prices keeps inflation edging further away from the Reserve Bank's target range of two per cent and three per cent.

The inflation figures were higher than expected, and this has seen the futures market push back the prospect of a rate cut in May 2025, and predict relief being postponed until December 2025.

Betashares chief economist David Bassanese said the sticky inflation readout would test the Reserve Bank's patience and made a rate cut before Christmas unlikely.

'Indeed, there's a simmering risk that the RBA may feel obligated to raise rates further to reduce inflation in those demand-sensitive areas it can influence,' he wrote, putting the odds of such a hike at around 30 to 40 per cent.

Saxo head of FX strategy Charu Chanana said the readout could give RBA reason to postpone rates cuts, but was unlikely to bring rate hikes back on the table given the loosening of the Australian labour market and stretched consumers.

Still, the money market's implied odds of an RBA rate hike in September rose from 12 per cent to 20 per cent following the report, according to CommSec economist Ryan Felsman.

'Traders now think that rate cuts are off the table until at least the middle of 2025,' Mr Felsman wrote.

With Stage 3 tax cuts set to take effect in just a month, the influx of extra cash to millions of people has economists concerned that inflation will rise even more.

But treasurer Jim Chalmers downplayed Wednesday's inflation figures, claiming that the monthly reports on price increases are less reliable than quarterly reports.

'As we've said many times the monthly inflation indicator can be volatile and is less reliable than the quarterly measure because it doesn't compare the same goods and services month to month,' Chalmers said.

Meanwhile, Shadow Treasurer Angus Taylor criticised the federal government for increasing spending as Australians face 'one of the highest and most persistent rates of inflation of any advanced economy'.

The latest data from the ABS found Australian consumers have responded to increasing interest rates by cutting back on spending.

Retail spending in April rose 0.1 per cent from March followinga 0.4 per cent fall in March and 0.2 per cent rise in February.

'Underlying retail spending continues to be weak with a small rise in turnover in April not enough to make up for a fall in March,' Ben Dorber, ABS head of retail statistics, said.

'Since the start of 2024, trend retail turnover has been flat as cautious consumers reduce their discretionary spending.'

Clothing sales fell0.7 per cent in the month and food sales also took a significant hit compared to March, which was inflated due to an early Easter.

'Consumers have reigned in their spending in response to a host of cost-of-living pressures, causing retail sales growth to grind to a halt over much of the past year,' Sean Langcake, head of Macroeconomic Forecasting for Oxford Economics Australia, said.

'There is some help on the way for household finances from the May budget, with tax cuts and subsidy payments set to boost cashflow from July.

'But this is unlikely to be enough to completely shake consumers out of their current funk. 'We expect momentum in retails sales will remain subdued over 2024.'

ChristmasConsumer Price IndexJim Chalmers