Another interest rate cut this August is more likely after today’s lower-than-expected rise in the price of Australian consumer goods and services.
The consumer price index (CPI), a key measure of inflation, rose 0.4 per cent in the June quarter and 2.4 per cent in the year to June, the Australian Bureau of Statistics said this morning.
The CPI had been expected to rise by 0.5 per cent in the June quarter for an annual rate of 2.5 per cent, according to an AAP survey of 12 economists.
In the minutes of its July meeting, the RBA said the inflation outlook “could still provide some scope for further easing, should that be required to support demand”.
HSBC chief economist Paul Bloxham said the lower figures would allow the RBA to cut the cash rate on August 6.
“Combine that with the fact that the Aussie dollar has lifted in the past week or so, sentiment remains weak and the unemployment rate has edged up, means they will probably cut the rate,” he said.
“Even though the RBA can deliver another cut there won’t be more to follow it.”
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Mr Bloxham said he thinks inflation will stabilise over the remainder of the year as the value of the Australian dollar stabilises.
“We still think inflation will remain in the lower half of the target band, we don’t have an inflation problem, inflation is close to its trough.”
JP Morgan economist Tom Kennedy said the weaker headline inflation figure could be attributed to a fall in domestic travel and accommodation, and cheaper fuel prices earlier in the year when the Australian dollar was higher.
He said JP Morgan was not expecting a rate cut at the RBA’s August meeting but thought the decision would be a close one.
“Next month’s RBA meeting definitely is live, it’s definitely going to be a close call,” Mr Kennedy said.
“This data today won’t be enough to sway them one side or the other.”
CommSec economist Savanth Sebastian said the lower-than-expected numbers would not increase the chance of an RBA rate cut.
“There is still one potentially for August, but I don’t think it’s a certainty by any means,” he said.
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However, he said, “It does mean that rates can stay lower over the near term”.
But this did not rule out future cuts if the CPI picked up, he added.
“We’ve probably seen the low point in inflation.
“While it’s not going to breach the top of the Reserve Bank’s target of three per cent, it certainly makes it a little bit more complicated to provide substantial rate cuts.”
Sebastian said he expected inflation from the rising cost of imported goods to increase as a result of the lower Australian dollar.
“It seems to suggest that the Reserve Bank will be comfortable about near-term inflation forecasts,” he said.
“But they may start to upgrade their medium-term outlook for inflation.”
The RBA has a target range for annual inflation of 2 to 3 per cent, and the latest figures will inform its August interest rate decision.
THE ANNUAL RATE OF CPI FOR EACH CAPITAL CITY
* Sydney – 2.6% * Melbourne – 2.2% * Brisbane – 2.0% * Adelaide – 2.1% * Perth – 2.5% * Hobart – 1.8% * Darwin – 3.9% * Canberra – 2.2%
