Consumer Price Figures Good for Home Buyers: REIA

Inflation figures released this week indicates that interest rates should stay low, which is good news for home buyers and renters.

The latest ABS consumer price index increased by 0.7 per cent in the December quarter, an annual increase of 1.8 per cent—and slightly up on the September quarter figures of 0.7 per cent and 1.7 per cent respectively.

The most significant price rises for the quarter were tobacco (8.4pc), domestic holidays (7.3pc), fuel (4.4pc) and fruit (6.8pc).

Price falls were recorded for international travel (-2.9pc), women's clothing (-2.5pc) and wine (-1.6pc).

REIA president Adrian Kelly said the annual results suggest the continuation of historically low official interest rates for some time yet.

“The annual changes in the trimmed mean have been below 2 per cent since December 2015 and for the weighted median since March 2018,” he said.

“The housing group increased by 0.1 per cent for the quarter and 0.2 per cent for the year to December 2019.

“Rents did not increase at all for the quarter and increased by just 0.2 per cent for the year.”

Capital Economics economist Ben Udy said after cutting through the noise underlying inflation was not as strong.

“The housing downturn is now over but its impact on inflation continues to linger,” he said.

“The cost of purchasing a new dwelling picked up for the first time since the beginning of 2019 but annual rent inflation fell to 0.2 per cent, the weakest on record.”

According to Commonwealth Bank of Australia economists falling dwelling prices sedated the housing component of the CPI over the past couple of years.

“Housing accounts for 23 per cent of the CPI—so housing weakness had quite a restraining impact on the inflation bottom line.

“This source of restraint should dissipate as dwelling prices rise.

“Housing costs explains a lot of the variation in inflation rates between capital cities.”

They added the RBA’s inflation target of 2-3 per cent felt more like an inflation aspiration in the current climate.

“From a purely inflation perspective the RBA has made no progress in achieving its inflation target over the past four years,” the CBA economists said.

“But some very gradual progress has been made towards achieving their other objective of full employment ( an unemployment rate of 4.5pc).

“The unemployment rate has declined from 5.8 per cent to 5.1 per cent over the past four years.”

The CBA also reported home buying intentions rose sharply since 2019 and home prices should respond to this making gains in 2020.

In 2019 house prices jumped in most capital cities with the housing market in Australia deemed "severely unaffordable".