Lower CPI rise may delay RBA cash rate hike prospect

Lower CPI rise may delay RBA cash rate hike prospect
Jonathan ChancellorDecember 7, 2020

The consumer price index rose by 0.6% over the three months to March, which pushed Australia’s annual inflation to 2.9%.

But most economists had predicted it to edge above 3% for the first time since 2011.

The lower than expected figure decreases the prospect of imminent interest rates rises, which was previously tipped possibly in the fourth-quarter of 2014.

Economists were tipping headline inflation to grow by 0.8% and take the annual rate to 3.2%, pushing inflation above the Reserve Bank’s 2-3% comfort zone target band.

Underlying inflation, which is closely followed by the Reserve Bank of Australia, came in below expectations too.

The trimmed mean CPI rose by 0.5 percent, 2.6 percent annually, after economists had forecast a 0.7 percent jump to 2.9 percent.

ANZ economist Warren Hogan tweeted "low CPI reading will be welcomed by the RBA after the high Q4 reading esp."

Hogan added the CPI data does not change our rates view.

"We expect cash rate on hold in ’14 before gradual rise in ’15," he forecast.

Economist Stephen Koukoulas tweeted, however, that "Inflation no longer low. The question is whether a 2.5% cash rate is needed with inflation now locked in above 2.5%."

The Australian dollar fell half a US cent following today's softer than expected inflation data.

The ABS data showed the most significant price rises this quarter were for tobacco (+6.7%), automotive fuel (+4.1%), secondary education (+6.0%), tertiary education (+4.3%), medical and hospital services (+1.9%) and pharmaceutical products (+6.1%).

These rises were partially offset by falls in furniture (-4.3%), maintenance and repair of motor vehicles (-3.3%), international holiday travel and accommodation (-2.4%) and domestic holiday travel and accommodation (-2.4%).

The tobacco price increase was caused by the federal excise tax rise from 1 December 2013 as well as the March 2014 biannual indexation based on the ABS' Average Weekly Ordinary Times Earnings (AWOTE) rate.

Education prices have risen with the commencement of the new school year, the ABS noted.

Rises for medical and hospital services and pharmaceutical products were a result of the cyclical reduction in the proportion of patients who qualify for subsidies under the Medicare Benefits Scheme and Pharmaceutical Benefits Scheme at the start of each calendar year.

 

Jonathan Chancellor

Jonathan Chancellor is one of Australia's most respected property journalists, having been at the top of the game since the early 1980s. Jonathan co-founded the property industry website Property Observer and has written for national and international publications.

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