Rate cut hopes dealt a blow

by Adam Smith13 Apr 2012

Hopes for a rate cut next month may have faded somewhat with strong job growth and higher inflationary expectations.

ABS figures have indicated stronger-than-expected jobs growth in March. The unemployment rate remained steady at 5.2%, while the total number of people employed increased by 44,000.

Consumers are also anticipating higher inflation for the months ahead. The Melbourne Institute Survey of Consumer Inflationary Expectations has found consumers are anticipating inflation to track at 3.3%, up from 2.7% in March. Melbourne Institute research fellow Dr. Edda Claus called the result a potentially worrying development.

"Upward pressure on prices generally arise with increases in aggregate demand. But aggregate demand is currently not growing strongly. If inflation expectations translate into actual inflationary pressures, the RBA may be caught in a policy dilemma. It may have to tighten monetary policy in times of moderate growth which puts further downward pressure on activity," Claus said.

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