Australians should avoid another interest rate hike but may have to wait until 2025 for mortgage relief, with the Reserve Bank tipped to take a tougher tone on inflation in May.

Economists are this week revising their forecasts for rates after March-quarter inflation was hotter than anticipated, with earlier hopes relief would begin from September now dashed.

Forecasts are now centring around the end of 2024, with a risk it may not begin until 2025.

It’s a sharp turn from just a few months ago when hopes inflation would ease faster than expected was driving optimism that mortgage relief was coming sooner rather than later.

But with prices for services like rents, insurance and education rising rapidly in early 2024, ANZ Bank’s head of Australian economics Adam Boyton expects the RBA to deliver gloomier short-term forecasts next week, while striking a “more hawkish” tone on reducing inflation.

Interest rates should still be on hold, however, sparing millions of families another painful rate hike after almost $1200 was already added to monthly bills on a typical $500,000, 25-year loan.

“The bank will likely call out that the Q1 CPI was above their forecasts,” Boyton explained.

“They could also escalate concerns about services price inflation, perhaps by stating that ‘a slower pace of services inflation is likely to be needed to see inflation consistent with the target band’.”

Oxford Australia head of macroeconomic forecasting Sean Langcake said the Consumer Price Index (CPI) data last week foreshadows a marathon battle in reducing headline inflation from 3.6 per cent to between 2 and 3 per cent.

“There’s concerning things in the print from last week,” he said.

Rents, insurance drive inflation fears

Langcake explained that while rates are unlikely to rise again, the horizon for cuts has been pushed back in the view of some because while good prices are falling, many services are still rising.

That has been a persistent concern for the RBA, which has adopted a multi-year timeline for getting inflation back to target precisely because of key categories like rents and insurance.

ABS figures last week showed insurance premiums rising at the fastest pace in 23 years, tied to myriad factors including natural disasters and broader inflation feeding into health care.

Rents, meanwhile, rose at the fastest pace since 2009 amid a persistent shortage of suitable housing in the market that has been unable to keep up with elevated levels of demand.

Langcake explained this has sparked a “timing mismatch” where inflation is proving more stubborn than hoped given consumer demand has been subdued in the face of higher rates.

That was evident in retail sales figures released on Tuesday, which implied a substantial fall in population-adjusted consumer spending, particularly for discretionary goods like clothing.

Rate-cut horizon delayed

It all means it’s likely going to take longer for the RBA to get to the point where it believes rates can be cut without derailing plans to reduce inflation back to target by late 2025.

Commonwealth Bank economists pushed back their forecast for rate cuts from September to November earlier this week, citing the higher-than-expected March-quarter inflation data.

Chief economist Gareth Aird said CBA is now also expecting just one rate cut in 2024, down from three, meaning households can only expect 0.25 percentage points of mortgage relief.

“The RBA has been successful in bringing down discretionary inflation, but dropping non‑discretionary inflation is proving to be a more difficult challenge,” Aird said.

Langcake also expects rate cuts to begin in the fourth quarter of the year, but said the balance of risks is weighted towards early 2025 following the gloomy inflation figures.