Australians are facing a “fork in the road” on the economy heading into the second half of 2024 as a pivotal August meeting of the Reserve Bank looms large over the outlook for mortgage bills.

Deloitte Access Economics partner Stephen Smith says a combination of June-quarter inflation and economic growth data due for release before the meeting will test central bank resolve.

There are two clear paths, he explained in forecasts published on Tuesday night, with one road where inflation is high “forcing the hand of the RBA” to again begin lifting interest rates.

Another possibility is that inflation will come in “more benign” in reflection of a slowing economy.

“That would see the RBA hold interest rates steady again next month, enabling households to lead a steady recovery in economic growth in 2024-25,” Smith said,

Thankfully for millions of households who have already been smashed by sharp hikes in interest rates, Deloitte’s latest forecasts suggest the second outcome is most likely heading into August.

Deloitte is now forecasting economic growth of just 1.7 per cent over the next year to June 2025 as the economy feels the pressure of higher interest rates and ongoing cost-of-living pressures.

That slower growth is helping to ease headline inflation, but some stubborn areas, such as energy bills and rents, are delaying progress.

Deloitte predicts the consumer price index will be 3.1 per cent in 2024-25, still slightly above the Reserve Bank’s target band.

August  interest rates meeting looms

The Reserve Bank will decide in mid-August whether to leave rates on ice at 4.35 per cent, where the target has been for the past eight months, or potentially hike mortgage bills again.

It’s a pivotal moment for households who were being told by experts just months ago that rate relief was imminent.

That outlook has soured since after a string of stubborn inflation readings.

Another hike would add more than $80 to monthly repayments on a typical $500,000, 25-year mortgage, further restricting the spending power of millions of families paying down debts.

Deloitte Access Economics partner Cathryn Lee doesn’t believe rates will rise, however, saying the current target is “restrictive” and that “inflation is retreating back towards the target”.

“Further interest rate increases are unlikely to temper price growth any more meaningfully than would otherwise be the case,” Lee explained.

Economy under pressure

Large swathes of the economy are already struggling with current conditions, with the Deloitte forecasts tipping weak growth in a number of sectors, particularly those exposed to consumers.

“Consumer and business confidence remains at rock bottom, household budgets have been decimated by broad cost-of-living pressures, and insolvencies have surged,” Deloitte economists wrote in their report.

Weak growth is also increasingly being felt in the jobs market, where unemployment is expected to rise to 4.1 per cent in 2024 and to 4.6 per cent in 2025, according to Deloitte’s latest forecasts.

Interestingly though, Smith explained that the jobless rate – at 4 per cent in June – is still below what might be expected.

“[It] can be explained by a growing body of evidence that suggests Australia’s unemployment rate remains so low because of job growth in non-market sectors such as health and disability services,” Smith said.

“Those jobs are important, but strong employment growth in those sectors is not typically associated with a booming economy.”