Crucially, across the whole of Australia, rent costs were unchanged in the December quarter. In the biggest housing market of Sydney rents dropped 0.3 per cent, and are now down 0.8 per cent for the year. How long will that last?

Before the past few quarters of rental contraction in Sydney, the NSW capital had only recorded one negative quarter since records were first kept in 1972.

One key indicator to rent is also house prices. Established house prices, which are not included in inflation readings, have been surging, and were up 4 per cent in the December quarter alone.

New dwelling purchases by owner-occupiers, which are included in inflation figures, have also just recorded some moderate growth across Australia, up 0.4 per cent in the quarter. That's the first positive quarter of growth in a year.

The Australian Bureau of Statistics attributed the increase to the base price of new apartments and the reductions in the value of promotional offers from developers for project homes.

Sydney contraction continues

In Sydney, that was not the case. New dwelling purchases dropped 0.7 per cent – the third consecutive quarter prices have fallen. That is highly unusual – there have only been five quarters of new dwelling prices contracting since records were first kept in 1998.


How long this contraction will last will be a key piece of information the RBA will want to get to grips with. Carol Schwartz, an RBA board member and director until last year of property developer Stockland, might be in a key position to provide that anecdotal information.

Furthermore, utilities prices are down 0.6 per cent across Australia and 0.2 per cent in Sydney in the December quarter, and its anyone's guess how long it will take for utilities prices to start swinging up again.

Once all of these prices start to turn back to their long-running norms, there is a chance inflation will sneak back up into the RBA's 2-3 per cent target range. That might further abate the need for the central bank to cut interest rates, but it's not a given.

With wage growth in the low 2 per cent range, there still may not be enough consumer spending coming through to boost retail prices and overall economic growth.

Even with a depreciating Australian dollar, imported inflation is still yet to show up in retail prices. The pass-through from lower exchange rate was weaker in December at just 0.2 per cent, following a a 0.9 per cent rise in the September quarter.

The drought too is finally due to break, which could help ease food prices such as beef, which jumped 2.9 per cent in the quarter – an annual growth rate of 11.6 percent.

But if they don't, the RBA might quickly find it has a different kind of inflation problem on its hands and it won't be about hitting the target range – it will be working out how households can pay for it.