Upcoming Interest Rate Decision
The Reserve Bank of Australia (RBA) is set to make a crucial decision on interest rates in August, and the upcoming consumer price figures will play a significant role in determining the outcome. Economists believe that a rate cut is likely, but it’s not a done deal just yet.
The RBA’s Cautious Approach
The RBA’s board earlier this month decided to hold the key cash rate at 3.85%, defying predictions of a rate cut. This decision has left investors and analysts wondering what the future holds for interest rates. The RBA’s governor, Michele Bullock, has indicated that interest rates are on the way down, but the bank will not be rushed into making a decision.
The Importance of Consumer Price Figures
The Australian Bureau of Statistics’s consumer price report, set to be released on Wednesday, will provide crucial information on the state of inflation in the country. Economists are predicting that inflation will ease further to 2.2% in the year to June, down from 2.4% in the previous quarter. However, the RBA will be focusing on the underlying measure of inflation, which strips out more volatile price movements, to get a clearer picture of the inflation rate.
What to Expect from the Consumer Price Report
Economists will be closely watching the quarterly underlying inflation figure, which is expected to come in at around 0.7%. A surprise result, with consumer prices rising materially faster than expected, could give the RBA board pause for thought. A rise of 0.9% or more in the quarterly underlying inflation figure would push the annual rate to 3% and could potentially derail an August rate cut.
The Impact of Government Subsidies
The government’s temporary rebates on household electricity bills have provided an artificial tailwind in the race to bring inflation back under control. However, as these handouts end, inflation is expected to drift back towards 3% by the end of the year. The RBA’s May forecasts indicate that it will take 18 months to get back to 2.6%.
Focus on Core Inflation Rate
The core inflation rate, which uses a "trimmed mean" measure to strip out more volatile price movements, has only just returned to the target band, at 2.9% in the year to March. Economists will be focused on this core inflation rate when the consumer price report is released on Wednesday.
Conclusion
The upcoming consumer price figures will play a crucial role in determining the RBA’s interest rate decision in August. While a rate cut is likely, it’s not a done deal just yet. The RBA will be closely watching the quarterly underlying inflation figure and the core inflation rate to determine the best course of action. As the economy continues to evolve, one thing is certain – the RBA’s decision will have a significant impact on millions of mortgaged Australians.
