The rate cut we've been waiting for?

One of the most popular conversation topics at Australian dinner parties is house prices. And it's amazing how we can become experts on various matters once they find their way to the front pages of our newspapers and iPads. Think about the carbon tax, offshore processing, the monarchy and interest rates - four topics currently consuming a disproportionate share of newsprint.

Let me add to that list the Consumer Price Index (CPI). In some ways it's a natural follow on from any discussion about interest rates but the key difference here is that the CPI gives us a real sense of the pulse of the Australian economy and a gauge as to what you and I, the consumers, are actually thinking and doing. And as a result of this week's release it is clear that we're not doing much! If there was ever any doubt that the RBA should cut rates, this week's CPI has made the decision for them.

The Australian consumer is currently voting with his/her wallet/purse. For all the reason I've outlined in this column previously in relation to pressures on households, Australians are choosing to save rather than spend and this has come through in a dramatic fashion in the September quarter CPI data.

Households are using any spare cash to either save or pay down debt; we are not going on shopping sprees. Indeed whenever I find myself in a shopping mall, it is fascinating to note the numbers of people in the stores and to see how few of them actually make their way to the cash registers. The CPI September quarter underlying inflation rate came in at 0.3 per cent, the lowest result since Q3 in 1997. Such a low figure comes as a surprise as the general market expectation was 0.6 per cent. This leaves the annual inflation rate at 2.5 per cent which is well inside the RBA's target band of 2.3 per cent.

The key components of the CPI to fall during the quarter were fuel, computers and furniture. Those on the rise were gas and electricity, rents and insurance.

So what can you do about it? There are certain expenditures that you cannot avoid; your rent or mortgage payments, electricity and gas, education expenses and insurances. But so called discretionary expenditure, those things that we sometimes 'want' but don't 'need', can be reigned in and you should take a close look at all of that.

For now though the Australian economy as a whole remains in relatively good shape compared to our international peers. Although there remain some tough sectors, we should control what we can in our own households and patiently wait for what will be the inevitable recovery.

* Mark Bouris is the Executive Chairman of Yellow Brick Road, a financial services company offering home loans, financial planning, accounting & tax and insurance. Email Mark on mark.neos@ybr.com.au with any queries you may have or check www.ybr.com.au for your nearest branch.