- Capital Economics
Australian consumer prices fell for the first time since 2009 last quarter, opening the door to a potential interest rate cut from the Reserve Bank of Australia as soon as next week. Headline inflation inched lower by 0.2% for the quarter amid falling petrol costs, leaving the annual increase at just 1.3%. Dragging inflation lower in the quarter was a 10% plunge in petrol and an 11% decline in fruit prices, while the cost of international holiday travel and accommodation also declined. Annual underlying inflation, which excludes volatile price movements, was the weakest since records began in 1983, increasing just 1.55%. CPI data was well below expectations, and the Australian Dollar lost more than 1%, to around 76.60 US cents.
Lower inflation will give more scope for the RBA to cut without risking more inflation in return if it decides the Australian economy needs more stimulus. Last week, when the central bank released its monthly cash rate statement, Governor Glenn Stevens said that persistently low inflation would provide scope for easier policy, should that be appropriate to underpin demand. Stevens added that inflation in Australia is likely to remain low over the next year or two, due to low domestic labour costs and the level of inflation elsewhere in the world.
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