Oct 26, 2016

No, the RBA is not going to cut rates on Cup Day

New inflation data shows a small rise in prices, but it's mostly down to the weather.

Glenn Dyer — <em>Crikey</em> business and media commentator

Glenn Dyer

Crikey business and media commentator

A further rate cut from the Reserve Bank looks unlikely after the September quarter Consumer Price Index data from the Australian Bureau of Statistics revealed a larger-than-expected quarter-on-quarter headline rate rise of 0.7% from the 0.4% in the three months to June. Economists had been looking for a rise of 0.5% from the June period. The reading pushed the annual rate up to 1.3%, from the 1.0% rate in the year to June 30. The rise in the headline rate follows small increases in New Zealand, the US, UK, China and the eurozone in the September quarter or the month of September -- a sign, according to economists, that inflation is starting again after a year or more of disinflation, or outright deflation, thanks to falling oil prices and low or nonexistent demand, especially for consumer goods and intense price cutting. On the Reserve Bank’s more favoured measures -- the trimmed mean and the weighted median -- inflation did not budge in the year to June at 1.5%, and on a quarter-on-quarter basis they were weaker at 0.4% against 0.45%. The readings will confirm the RBA’s decision to sit and watch to see how growth happens, the results of the November 8 US presidential poll and then the December meeting of the US Federal Reserve, which is still expected to push up rates. The Australian Bureau of Statistics said the headline rate rise was driven by a strong rebound in the cost of fruit and vegetables (especially tomatoes), up 19.5% and 5.9% respectively; electricity costs rose 5.4% and tobacco 2.3% as the now usual quarterly indexed cost increase kicked in. Offsetting these rises were small falls of 2.9% in the cost of fuel and 2.5% in the cost of telecommunication equipment and services. The rise in fruit and vegetable prices was due to adverse weather conditions, including floods, in major growing areas, and economists expect that impact to continue this quarter, although there was been a noticeable easing in fruit and vegetable costs in supermarkets and stores in the past three weeks. Higher fuel costs will also be more noticeable this quarter and in the March period as oil prices will be higher than they were a year ago. But while inflation remains weak, we are getting solid economic growth -- and some jobs growth (if the muddled data in the Bureau of Statistics Labour Force series can be believed). Solid growth and low inflation is a good policy outcome, but more certainty on what is happening in the jobs market would be even better.

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One thought on “No, the RBA is not going to cut rates on Cup Day

  1. Dog's Breakfast

    I hope they don’t lower interest rates any further. It is the medicine we no longer need.

    A few rate rises would be good for many, perhaps most. I look forward to them.

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