Inflation is unlikely to be the trigger for a Reserve Bank rate cut. The consumer price index, the key measure of inflation, is expected to have risen 0.7 per cent in the September quarter for an annual rate of 1.7 per cent, an AAP survey of 15 economists shows.
That’s below the RBA’s target inflation range of two to three per cent. September quarter inflation, due to be released on Wednesday, follows a rise of 0.7 per cent in the June quarter for an annual rate of 1.5 per cent.
National Australia Bank economist Tapas Strickland said higher tobacco prices and housing charges – mainly from utilities and new dwellings – are expected to be the main drivers of growth in the three months to September.
But a benign outlook for inflation is unlikely to sway the central bank’s neutral cash rate stance, TD Securities head of Asia-Pacific research Annette Beacher said.
“Upbeat RBA October board meeting minutes put another nail in the coffin of a November rate cut,” she said. “With the RBA at least twice a month reaffirming that it sees inflation remaining within target, even with the depreciation of the exchange rate, we can’t see even a weaker than expected September quarter CPI report being a trigger.”
Any movement in rates will likely depend more on further tightening in financial conditions, which may stem from the recent mortgage interest rate hikes by the big four banks, Mr Strickland said.
Many borrowers will be paying more in interest from mid-November, as the major lenders seek to cover the cost of new regulations on the amount of capital they must hold in reserve.
AMP Capital chief economist Shane Oliver says there’s a chance the RBA will deliver a cut on Melbourne Cup day to offset the impact on household budgets. “But the RBA may need more convincing and so there is a risk it could be delayed into early next year,” he said.
However Ms Beacher said the RBA had expected lenders to shore up their financial stability in response to regulatory demands. “If the RBA cuts again it will be next year, based on global growth concerns and weak commodity prices, not shoring up the still hot housing market,” she said.
The median forecast for underlying inflation, which excludes volatile price movements, is 0.5 per cent in the September quarter, and 2.45 per cent over the year to September.
The cash rate has remained at the record low of 2.0 per cent for sixth straight months since a cut of 0.25 basis points in May.