The hares are running: Inflation rises less than expected
Added on by Etairos Accounting
Australian inflation rose 0.5 per cent in the September quarter of 2015, 0.2 percentage points less than expected, which has drastically boosted the chances for an interest rate cut next week.
The Australian dollar fell over half a US cent on the news, from US71.90¢ to US71.30¢, following the release of the ABS data on Wednesday morning. The result puts new pressure on the Reserve Bank of Australia to cut the official cash rate at its Melbourne Cup Day meeting in an effort to fire up the economy.
Economists had been expecting a rise in the consumer price index of 0.7 per cent for the quarter, according to Bloomberg.
The result means that CPI rose 1.5 per cent through the year to the September quarter 2015, instead of the 1.7 per cent that economists had tipped. Economists believe the lower-than-expected result increases the likelihood the Reserve Bank will cut interest rates soon. According to Citibank , there had been a 60 per cent chance of a 25 basis point cut before the end of the year before the September quarter result was published. That has now increased to an 80 per cent chance of a cut.
The ABS reported that the "trimmed mean" inflation measure counted by the Reserve Bank as "underlying inflation" only lifted 0.3 per cent to 2.1 per cent - also a long way below expectations. Many analysts had been expecting a 0.6 percentage point lift to 2.5 per cent. Underlying inflation of 2.1 per cent is on the fringe of the 2 to 3 per cent inflation band the Reserve Bank tries to target via monetary policy (interest rate settings).
This [result] has definitely got the hares running on the prospect of a near-term cut according to JP Morgan.
Citibank believes that "unlike [other] previous periods, headline inflation hasn't bounced decisively off its recent low and underlying inflation has continued to ease". They continue to expect the Reserve Bank to lower the cash rate next week but acknowledge it is a close call.
UBS said that "today's inflation solidly beat expectations to the downside, with core inflation ... at one of the two lowest outcomes in almost 20 years...there's little here to stop the Reserve Bank offsetting the recent Retail Bank rate hikes when it meets next week."
(Source: Sydney Morning Herald, 28 October 2015)
