Tuesday, 18 October 2011

CPI data crucial to interest rate outlook aap

CPI data crucial to interest rate outlook

aap
On Tuesday 18 October 2011, 15:43 EST
The central bank says inflationary pressures have eased slightly giving it scope for interest rate cuts if domestic and global economic conditions deteriorate.
The minutes of the Reserve Bank of Australia's (RBA) October 4 board meeting, released on Tuesday, showed the bank was taking a wait-and-see approach on the cash rate, which has been at 4.75 per cent since November last year.
"While there remained good reasons to expect solid growth over the medium term, indications were that the pace of near-term growth was unlikely to be as strong as earlier expected," the RBA minutes said.
"With labour market conditions now a little softer, the likelihood of a significant acceleration in aggregate labour costs was lessening."
RBA staff had estimated that, taking into account revised inflation data, underlying inflation would have come in at 2.25 to 2.5 per cent over the year to the June quarter, rather than the 2.5 to 2.75 per cent that was previously thought.
The September quarter consumer price index (CPI), the key measure of inflation, will be released on Wednesday next week.
HSBC chief economist Paul Bloxham said the minutes show the RBA was becoming less concerned about the outlook for inflation.
"On this front, the global slowdown and the very high exchange rate seem to have done a fair bit of work for the RBA," Mr Bloxham said.
"The key thing they've also pointed out is that they're waiting for the next CPI read, which I think will be a really critical piece of information."
Mr Bloxham expects the CPI figures to show that inflation is still elevated, suggesting that the RBA will keep the cash rate on hold for the rest of the year.
"We still think the next move is likely to be up rather than down.
"But clearly, this is highly conditional on what happens globally," he said.
ICAP senior economist Adam Carr said the RBA was upbeat about the resources boom but that the global growth outlook depended on a resolution to the eurozone government debt crisis.
"It's pretty clear that the RBA board is considering whether they need to ease or not, rather than whether they need to tighten or not, as was the case in August - and that of course is primarily due to events in Europe," he said.
"We still see them on hold for the rest of this year, but clearly next week's CPI print will be very important."
Westpac chief economist Bill Evans said the November RBA board meeting would be important.
"Not only will that give them more time to assess domestic risks and the global outlook, but also allow evidence from the print on underlying inflation for the September quarter to provide very significant downward revisions to the inflation outlook," Mr Evans said.
"We have maintained our call for a rate cut in December since we first released that forecast on July 15.
"However, there is now no doubt that a constructive inflation print on October 26 will give the (Reserve) Bank ample scope to cut rates on November 1."

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