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Inflation is slowing, but not everyone's feeling the relief. Here's what that means for you

Inflation slowed to its lowest level in two years this week, welcome news that has sparked hope of earlier-than-expected interest rate cuts this year.
But despite headline data suggesting the cost of living crisis may finally be easing, few Australian households would have found covering their essentials has got any easier.
This is why, and what impact declining inflation is actually having on your hip pocket.
While inflation has eased, the cost of your average grocery bill probably hasn't. (Getty)

If inflation has eased, why haven't my living costs?

Slowing inflation doesn't actually mean prices are coming down – it just means they're rising less quickly than in previous months.
It's also not something that applies uniformly across the entire economy.
The latest Australian Bureau of Statistics (ABS) data put the consumer price index (CPI) at 4.1 per cent, but not all sectors saw price rises of that amount.
Some – such as recreation, clothing and furnishings – rose by far less or even fell, while others rose far more sharply.
"Depending on what a consumer buys, the 'easing inflation' report may or may not match their pocketbook's experience," Professor Gigi Foster from the UNSW Business School said.
Unfortunately, many of the costs that rose quicker than inflation were for essentials: food and non-alcoholic beverages (4.5 per cent), housing (6.1 per cent), electricity (6.9 per cent) and health (8 per cent) are all goods and services households can't avoid spending on, even as their prices increase faster than wages.
"Not many workers have enjoyed the 4.1 per cent wage increase needed just to tread water," Canstar finance expert Steve Mickenbecker said.
should 50 per cent rent hikes be made illegal domain
Housing costs have increased far quicker than the rate of inflation. (Chris Hopkins)

So is inflation actually low yet?

While 4.1 per cent is Australia's lowest inflation rate in years, it's still not low by historical standards. Indeed, it's still comfortably above the RBA's target of 2-3 per cent.
"The inflation rate has been on a declining trend, but it's important to note that the current level is still relatively high," Dr Gonzalo Castex, an economist from the UNSW Business School said.
"While the recent decline is notable, the absolute level of 4.1 per cent is still considerably higher than the upper bound of the RBA's target. Generally, an inflation rate within the 2-3 per cent range is conducive to price stability and economic growth."
Foster says it's only once inflation comes back to that target range when households will start to feel the cost of living has eased.
"The RBA has a target 2-3 per cent inflation rate for a reason," she said.
"It's the level at which the economy hums along without people having to think too hard about rising prices and what they mean for contracts, weekly budgeting, or anything else, but still while generally feeling upbeat about the economy, and acting accordingly."
The Reserve Bank of Australia (RBA) office in Sydney
The Reserve Bank is already facing calls to lower interest rates after recent inflation data. (AP/Mark Baker)

With inflation slowing, when will interest rates drop?

There's been much interest in the cash rate since Wednesday's inflation figures, with the stock market reaching record highs on the back of expectations of rate cuts.
Castex says while there's a chance of the RBA cutting rates during "upcoming meetings", there's no guarantee.
"If inflation continues its downward trajectory, the RBA will likely respond by lowering the cash rate," he said.
"However, new geopolitical developments in the Middle East could potentially impact prices, adding an element of uncertainty to this scenario. There are also other economic indicators to take into consideration, like the unemployment rate, for example."
Foster is far less convinced, defying market expectations and predicting the RBA will instead opt for more rate hikes in 2024.
"Some analysts are predicting fewer rate hikes in the near future. However, we are still far from reaching RBA's target cash rate range of 2-3 per cent," she said.
"There are also signs that the labour market is still very tight – that's one of the indicators the RBA uses to determine whether it can keep pushing rates up without knocking the economy into a visible downturn.
"I expect we will see more rate hikes this year."

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