The RBA’s stated objective is to achieve an inflation rate of between 2% and 3%, “on average, over time.” Since the GFC, Australia’s inflation rate has been trending lower and lower and it has been below the RBA’s target band for some years now. Despite the RBA’s desire for a higher inflation rate, attempts to accelerate inflation through record-low interest rates have failed. The latest unofficial reading suggests consumer inflation is not likely to increase any time soon.
The Melbourne Institute’s latest Inflation Gauge index remained unchanged in November following 0.1% increases in both October and September. On an annual basis, the index increased by 1.5%, the same rate as in October.
Domestic bond yields finished the day noticeably higher, although it is unlikely the sell-off was driven by these figures or the other reports such as October’s dwelling approvals figures and ANZ’s latest Job Ads survey which were released at roughly the same time. By the end of the day, 3-year ACGB yields had gained 4bps to 0.69% while 10-year and 20-year yields had each increased by 6bps to 1.10% and 1.50% respectively.
Prices of cash futures contracts moved to lower expectations of another cut in the cash rate target, although one more rate cut is still largely expected within the next six months. By the end of the day, December contracts implied a 9% chance of another 25bps rate cut, down from the previous day’s 13%. February contracts implied a 70% chance of a cut, down from 77% while May continued to fully price in another rate reduction.