Rising inflation could mean just one more RBA rate cut: HSBC’s Paul Bloxham

The Reserve Bank is likely to cut the cash rate only once more – either in November or December – but that could be it for the current monetary policy easing cycle, according to HSBC chief economist Paul Bloxham.

Most economists (23 out of 27 polled by Bloomberg) are tipping a rate cut on Melbourne Cup Day.

Bloxham says the release of third-quarter CPI data shows that inflation is now trending up, giving the RBA “less room to move on rates”.

Examining yesterday's inflation data, Bloxham says it indicates that inflation has passed the low point.

Bloxham says the ABS data shows that Australia inflation jumped in the third quarter, “partly due to the introduction of the carbon tax which boosted the headline figure to 2% year-on-year” above HSBC forecasts of 1.9% and market expectations of 1.6%.

“Looking at the various measures, it appears inflation may have passed its trough and while we still expect another RBA cut by year-end, we think this could be the last this easing cycle.”

“The RBA has said it will look through the third quarter result, much like it did when the GST was introduced in 2000.

“However, with the prospects of inflation already on the up and with the RBA already having cut rates by 150 basis points we think that they may have less room to move on rates now,” says Bloxham.

Bloxham also points that in annual terms, inflationary pressures are strongest in the major categories of health (+7.2%), education (+6.1%) and housing (+4.7%), which was partly offset by declines in recreation and culture (-1.5%) and food and beverages (-1.1%).