- Craig James, Commonwealth Bank's chief economist
Consumer prices account for a majority of overall inflation and represents a high importance for the central bank. This week the Australian Bureau of Statistics will publish inflation for the June quarter, but do not expect the RBA to be moved by this report. Unlike all the other report in the recent months or years, the importance of the upcoming bit of data will be almost unimportant. The inflation rate is likely to benign, meaning policymakers will have plenty of scope to keep the monetary policy at the record-low for as long as it is needed. The central bank is unlikely to be fussed by the headline inflation rate fluctuating around the top end of the target range. According to recent reports, labour costs were almost unchanged over the last year, meaning wage growth is weak, while productivity is on the mend. Inflation is still expected to remain within the target range, while exports will most probably ease back, hence, GDP growth will be below trend over this year and, perhaps, the next one.
Another headache for policymakers and politicians, is the nation's budget. After cutbacks were announced, consumer and business confidence slumped, compounding weaker performance of the mining sector. There are many factors which are acting as constraints on economic growth, hence, inflation is likely to be the least of the RBA's problems now.
© Dukascopy Bank SA