New figures spark fresh rate cut debate

by Mackenzie McCarty24 Jan 2013

Economists are yet again pointing towards a potential February rate cut after ABS statistics released yesterday showed inflation remains near the lower end of its target range - but whether the RBA will take heed sooner, rather than later, remains to be seen.

Over the final three months of 2012, Australia's consumer price index (CPI) rose just 0.2%, to be up 2.2% for the year.

Underlying inflation stood at 0.55% for the December quarter and 2.3% for the year.

Financial comparison site Mozo says the figures add up to ‘a good possibility of a rate cut’, citing Su-Lin Ong from RBC Capital Markets.

"It increases the risk of a rate cut, because inflation is coming in lower than what the RBA had forecast and because it is in the bottom half of the target range and very well behaved…We think maybe they will wait for a bit more data, given they cut by 50 basis points late last year," she said.

She believes the RBA will wait until April to make further cuts, saying the RBA will want to see how the economy fares over the next few months.

In an interview with The Australian, JP Morgan Australia chief economist, Stephen Walters, says that, while the odds of a rate cut have gone up, it’s far from being a certainty.

"It's not enough to argue that the RBA has to cut the cash rate at the first opportunity but if they think it is necessary, which is debatable, then they have certainly got an excuse with this inflation data."

The most significant price rises of the quarter were in the communication and insurance and financial services sectors, but these were offset by falls in the cost of healthcare, furniture and food and drinks.