RBA interest rate cut of 50 basis points possible after very low quarterly inflation of 0.1%

The March quarter inflation reading has come in well below economist forecasts, paving the way for a possible 50-basis-point percentage point rate cut on May 1.

Inflation rose just 0.1% over the quarter to be up 1.6% through the year to the March quarter 2012 – significantly below the RBA’s target band of 2% to 3%.

Underlying inflation came in at 2.1% on an annualised basis with CommSec chief economist Craig James said this meant a 0.25% rate cut is now all but certain.

The Australian dollar fell from $US1.031 to $US1.026 following the release of the ABS data.??

The less volatile underlying measure of inflation came in well under expectation with the trimmed mean reading at 0.3% for the quarter and 2.2% annualised with the weighted mean reading of inflation at 0.4% for the quarter and 2.1% on an annualised basis.

Economists had forecast an underlying inflation reading of 0.6% for the March quarter, taking the annual underlying inflation rate from 2.6% in the December quarter to 2.4% in the March quarter.

According to economist Christopher Joye a reading of 0.5% to 0.6% would give the green light to a 25-basis-point cut, with anything lower allowing the RBA to consider a 0.5% rate cut on May 1.

The most significant price rises this quarter were for pharmaceutical products (+14.1%), secondary education (+7.7%), automotive fuel (+2.5%), medical and hospital services (+2.1%), tertiary education (+4.7%) and rents (+1%).

The most significant price falls this quarter were for fruit (-30%), international holiday travel and accommodation (-4.8%), furniture (-6%), audio, visual and computing equipment (-6.3%) and domestic holiday travel and accommodation (-2%).

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer


Be the first one to comment on this article
What would you like to say about this project?