Falling interest rates and petrol prices helping Australian families

Written on the 12th of December 2008

THE average Australian will head into Christmas close to $700 a month better off than they were six months ago.

THE average Australian will head into Christmas close to $700 a month better off than they were six months ago, defying the common belief that bleak economic conditions are hurting families.

Economists yesterday told The Daily Telegraph the cost of living in Australia was at a five-year low thanks to plummeting interest rates, and falling petrol and grocery prices.

As Commsec chief equities analyst Craig James puts it: "It is raining cash."

Taking today's widely expected Reserve Bank rate cut into account, home owners are saving on average $525 a month on their mortgage repayments, and $72 a month on petrol, compared with June.

Consumers were also saving considerable amounts on travel, retail products, wine and groceries.

In addition to those cost savings, pensioners and lower-income families will next week receive their pre-Christmas cheque courtesy of the Rudd Government's $10.4 billion economic bailout.

"The dollars are being rained upon us from all over the place. A lot of people are saying that things have never been better," Mr James said.

"Over the past two months in particular, the cost of living has come down significantly. A lot of people (are) saying that if this is a downturn, and we are heading for a recession, then perhaps this should happen more often.

"We are hearing about people pulling out bags of money at open inspections (of houses) and paying the deposit. There is also a lot of people buying furniture with cash."

The dramatic turnaround comes barely six months after hundreds of thousands of homeowners were staring at bleak financial futures, amid high interest rates and exorbitant petrol prices.

JP Morgan analysts said that only three months ago 800,000 homeowners were under serious mortgage stress.

Today, those same homeowners will once again be singing the praises of the Reserve Bank. Economists predict the RBA will hack interest rates by at least 0.75 per cent when its board meets today, taking its official cash rate to 4.5 per cent.

However, after a dramatic fall in a key inflation measure yesterday, some analysts are predicting a cut of 1 per cent.

That economic measure - the TD Securities inflation gauge - indicated inflation fell in November. It may be the green light the RBA was looking for to implement a substantial rate cut.

Source: www.news.com.au