A key inflation measure has added fuel to speculation that the RBA will again cut rates when it meets on February 7.
The Producer Price Index, often a leading indicator of the CPI, came in just below analysts' expectations at 0.3% for the quarter. With CPI figures due tomorrow, Westpac senior economist Justin Smirk has said inflation risks are weighted to the downside.
"Today’s PPI release has left us more confident hat an upside surprise to our forecasts are unlikely and that a downside surprise is the more likely outcome," Smirk said.
Upside surprises were present in the PPI numbers, however. Core measures of inflation in construction rose more than expected. Nevertheless, Smirk said domestic core inflation "continues to hang around 2.5% per year".
Should the Reserve choose to move on rates when it next meets, the question remains whether banks will choose to pass on the cut. According to the Australian Financial Review, a Morgan Stanley analysis has predicted the banks will reprice home loans in an effort to offset higher funding costs, passing on only a fraction of any RBA cuts.
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