According to the monthly price index, the rate of inflation in Australia fell again in February. Unlike the quarterly inflation figures, only some of the prices in Australia are updated on a monthly basis. However, the monthly figures have proven to be a reliable indicator of the ‘full’ inflation figures over the years, Commerzbank’s FX analyst Volkmar Baur notes.
Economic environment in Australia is more supportive of another rate cut
“At 2.4 per cent, the headline rate was slightly below the previous month’s 2.5 per cent and also below most analysts’ expectations of no change. This suggests that inflation is settling into the central bank’s target range of 2-3 per cent. However, some weaknesses remain. In particular, the situation in the services sector remains worrying, where inflation is still quite high at 3.6 per cent and has been slow to converge to the central bank’s target.”
“However, even here there are signs of improvement, albeit slowly. Monthly rates of change in financial services have recently moderated somewhat, and the fact that house prices are not rising quite as fast, and have even fallen slightly recently, suggests that price pressures in the rental market, where inflation rates are still high, are also easing.”
“When the Reserve Bank of Australia holds its next policy meeting next week, it will have to decide how to deal with this mixed picture. While global uncertainties certainly call for caution, in my view the economic environment in Australia is more supportive of another rate cut. The inflation figures give the green light.”