- Reserve Bank of Australia
Inflation expectations among Australians declined to the lowest level in eight month in May, with weak first-quarter consumer price data having a negative effect on expectations. The Melbourne Institute Survey of Consumer Inflationary Expectations revealed that Australians expect that the price level will increase 3.2% over the next 12 months, down from 3.6% a month earlier. Weaker inflation expectations follow official inflation figures released by the Australian Bureau of Statistics, which showed that consumer prices declined 0.2% in the March quarter, the first drop in seven years. The annual change in the price level slowed from 1.7% to 1.3% in the first quarter. Following the CPI release, the RBA last week cut the official cash rate by 25 basis points to a fresh record low of 1.75%. Also, the central bank downgraded its inflation outlook, from expecting underlying inflation to remain within the target range, albeit at the lower end until the fourth quarter of 2016, to now anticipating 1-2% underlying CPI inflation for the year ending December 2016, and 1.5-2.5% inflation for the rest of the forecast period. While the RBA's inflation forecasts were significantly lower than the previous estimated, the bank's economic growth outlook was largely unchanged. In the short term, the RBA predicts slightly stronger growth of around 3%, but left its longer-term GDP forecasts intact at 2.5-3.5%.
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