Inflation data may fuel expectations for rate cut, says broker chief

by Julia Corderoy23 Apr 2015
The latest inflation figures will provide the Reserve Bank some “food for thought” going into its next monetary policy meeting, according to the chief executive of Mortgage Choice.

Data released by the Australian Bureau of Statistics yesterday has revealed the Consumer Price Index (CPI), the key measure of inflation, rose 0.2% over the March quarter. This latest result means CPI climbed by just 1.3% over the 12 months to March 2015 – far below the Reserve Bank of Australia’s 2% - 3% target band range.

Mortgage Choice’s new chief executive John Flavell said while the 1.3% annual growth was largely in line with “market expectations”, it will no doubt provide the Reserve Bank of Australia with some food for thought heading into next month’s Board meeting. 

“Given that the annual rate of inflation is sitting at just 1.3% – which is well below the Reserve Bank’s target band range and the slowest annual pace in nearly three years – the Reserve Bank may face pressure to stimulate the economy,” he said.  

“I think the latest CPI result may fuel expectations of a rate cut in May.”

After the central bank decided to leave the cash rate on hold in April, governor Glenn Stevens said further monetary policy easing may be appropriate to “foster sustainable growth in demand and inflation consistent with the target”. 

“So, with that said and given today’s inflation result, I wouldn’t be surprised if whispers of another rate cut intensify over the coming two weeks,” Flavell said.

However, while headline inflation was below target, data from the Australian Bureau of Statistics revealed underlying inflation, which strips out the effects of volatile price movements, rose 0.6% in the March quarter, for an annual rate of 2.35%.