Pressure mounts on RBA to cut rates after inflation falls again

Pressure mounts on RBA to cut rates after inflation falls again

Author : Published:

Updated

April 24, 2019 12:52:39

The Reserve Bank is under more pressure to cut interest rates after inflation fell further below its target band.

Key points:

  • Core inflation of 1.4pc is the lowest on record
  • The RBA acknowledged continued low inflation is a key condition to cutting interest rates
  • Headline inflation, including fresh food and fuel, fell to zero over the first quarter

Core inflation —an average of the trimmed mean and weighted median measures and regarded as the RBA’s preferred inflation measure — came in at 1.4 per cent over the year, the weakest reading since the series started in 2003.

It has now been stuck below the RBA’s 2-3 per cent target band for three years.

Headline inflation — which includes volatile items such as fresh food and fuel — was flat over the quarter, and dropped from the 1.8 per cent recorded over 2018 to 1.3 per cent at the end of March.

The weaker than expected data sent the Australian dollar tumbling almost 1 per cent.

At 11:45am (AEST), the dollar was buying 70.39 US cents as traders’ expectations of a rate cut in coming months increased.

Money markets are now pricing in a better than 50 per cent chance of an RBA rate cut next month.

The inflation data follows a slight uptick in unemployment.

A continued rise in monthly jobless figures would meet the RBA’s other condition for a rate cut.

$A reaction to inflation data
Photo:
The $A fell immediately on the news of the weak inflation figures as markets bet the RBA will be forced to cut rates. (ABC News/Thomson Reuters Eikon)

Indeed economist Callam Pickering said the RBA may as well cut rates now.

“We have credible inflation figures going back almost five decades,” Mr Pickering said.

“The past three years is simply without precedent with regards to how persistently low inflation has been. It shows no sign of relenting.”

A fall in fuel prices (-8.7 per cent) and travel costs balanced out significant hikes in vegetable prices (+7.7 per cent) caused by the unhappy confluence of both drought and floods in the first three months of year.

The cost of secondary education (+4.2 per cent) and motor vehicles (+2.4 per cent) also hit households’ pockets.

External Link:

Inflation: headline & core measures

Topics:

business-economics-and-finance,

economic-trends,

australia

First posted

April 24, 2019 11:39:03

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