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Latest CPI figures improve chance of rate cut

Latest CPI figures improve chance of rate cut

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Staff Reporter

The case for a rate cut became a little bit stronger yesterday after the latest consumer price index (CPI) figures revealed inflation was now less of a concern.

According to the Australian Bureau of Statistics (ABS), the CPI rose just 0.6 per cent for the quarter – well within the Reserve Bank of Australia’s (RBA) safety zone.

On the back of this news, NAB chief economist Alan Oster immediately reviewed the bank's rate outlook to include a 25 basis point rate cut next week. A decision is due next Tuesday.

“The softer CPI outcome, and in particular the lower near-term outlook means the RBA can relatively safely provide some near-term stimulus to the underperforming interest sensitive sectors of the economy,” Mr Oster said.

These comments were largely echoed by Housing Industry Association (HIA) senior economist Andrew Harvey.

Mr Harvey said the latest CPI figures confirmed that in recent quarters the RBA has been judging monetary policy on the basis of overstated inflation figures, clearing the way for a November rate cut.

“Revised CPI methodology by the ABS means that in effect the RBA has been recently target an inflation rate of 1.75 to 2.75 per cent rather than it stated rate of two to three per cent,” Mr Harvey said.

“This raises fresh questions over the RBA’s retention of tightening bias over much of 2011, but more importantly it leaves the RBA with plenty of space to cut rates by the end of this year.”

While Mr Harvey would not confirm when the RBA is likely to drop rates, the Real Estate Institute of Australia (REIA) acting President Ms Pamela Bennett was a little more bold – calling for a November rate cut.

“The latest figures are well within the RBA’s target zone of two to three per cent and should provide a clear message to the RBA to reduce official interest rates next week,” Ms Bennett said.

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Latest CPI figures improve chance of rate cut
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