The TD Securities Melbourne Institute Monthly inflation gauge indicator showed there was no change in consumer prices over the month. It put the annual rate of inflation at 1.8%.
Head of TD Securities Asia Pacific research, Annette Beacher, said despite inflation being below the RBA’s target inflation band of 2.0% to 3.0%, the RBA was unlikely to cut rates on 2 November when it next meets. This is in line with the view of the Australian National University’s “shadow RBA board” that forecast no change to rates. The market pricing, using the 30 day cash rate futures, suggests a 44% chance of a rate cut.
Paul Bloxham, HSBC’s chief economist and the only bank economist to sit on the shadow board said that last week’s surprise low CPI release could see the RBA cut rates if it wanted to, “The question isn’t whether growth is picking up; it’s can we get a bit more growth”. This echoes the recent comments by the RBA that monetary policy has its limits and further rate cuts might not have the desired effect of stimulating growth. Other analysts believe the RBA prefers to keep stimulus ‘up its sleeve’ in case the economy takes a turn for the worse and it really needs a rate cut.
Westpac said the Gauge has been “almost spot on” to the quarterly change in the CPI since 2014. “We are now closely watching the Gauge for a lead on the Q4CPI. The Gauge is pointing to another very modest print in Q4.”
