Low inflation points to further rate cut action from the RBA

The economy looks set for another interest rate cut next month with inflation having eased to 1.3 per cent in the March quarter. 

The biggest factor in keeping inflation so low was fuel prices which dropped more than 12 per cent after they fell 6.8 per cent the preceding quarter.

A big drop in fruit prices, of 8 per cent, also helped to reduce the inflation rate. 

The data enforces the Reserve Bank’s view that retail discounts, cheap fuel and the lack of wage pressures signal a slowing economy. 

The question remains whether it will be enough to convince the RBA to cut rates for the second time this year. 

The data saw an immediate spike in the Australian dollar of 0.5 per cent to US77.57c. 

Senior investment manager for Aberdeen Asset Management, Justin Tyler, spoke to The Age. 

“The core CPI measures – which are obviously the most important to RBA policy deliberations – were in line with market expectations,” he said.

“With the annual rate of inflation remaining benign, and in an environment of weaker wage growth, potentially tighter fiscal policy and continued fears around job security, we believe there is still room for the Reserve Bank to reduce interest rates further to support demand.” 

Savanth Sebastian also spoke to the The Age and thinks the RBA should again move on rates next month. 

“Despite the mildly higher-than-expected readings on underlying measures, the Reserve Bank can comfortably ignore inflation and discuss merits of another interest rate cut on the economy,” he said. 

” We expect the Reserve Bank to cut rates to 2 per cent in May.”


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