Interest rates could well be cut again next week after more weak inflation figures

Inflation has sunk to its lowest level since 1999 and it has left the door wide open for more interest rate cuts this year.

The RBA’s inflation rate target band is 2-3 per cent, but after crawling up just 0.4 per cent for the June quarter, the annual rate now sits at just 1 per cent.

RBC Capital Markets senior economist Su-Lin Ong told The Age the figures give the RBA a reason to cut rates next week.

“The key is obviously the core measures which continue to print at very modest levels averaging a little under a half a per cent for the quarter,” she said.

“The annual rate for core inflation remains steady at around 1.5 per cent, so it’s a continued undershoot of the inflation target.”

“Importantly it’s in line with the RBA’s own forecast both for the quarter and medium term as well. It’s enough for them to cut if they want to move next week because it confirms that very benign inflationary environment and outlook and we know that weaker wage and unit labour cost data also supports that.”

“We are sticking with a cut next week.”

Economist at JP Morgan, Tom Kennedy, agreed with Ms Ong on the possibility of a cut to the official cash rate next week.

“We think that this print is low enough to see the RBA provide a bit more support to the economy,” he told The Age.

“For us, this is definitely consistent with the idea that the cash rate needs to go lower.”

Interest rates currently sit at a record low of 1.75 per cent after being cut in May off the back of similar weak inflation figures.


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