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RBA might not cut in November, economists

9News Finance   AAP   October 24, 2012

Economists say a larger-than-expected rise in inflation for the September quarter could encourage Australia's central bank to keep the cash rate steady at its next meeting.

The price of Australian consumer goods and services rose 2.0 per cent in the year to September, a faster rise than economists had expected.

The consumer price index (CPI), a key measure of inflation, rose 1.4 per cent in the September quarter, after rising by 0.5 per cent in the June quarter, the Australian Bureau of Statistics said on Wednesday.

JP Morgan economist Tom Kennedy said the federal government's carbon tax - introduced on July 1 - seemed to have impacted the numbers.

"It looks like the main rise was in the housing component," he said.

"That's the area where we expected the carbon tax to have the largest impact - it includes electricity and housing fuels, both of which were up in the double digits."

Mr Kennedy said rises in fruit and vegetable prices also contributed to the higher number.

He added that the result increased the likelihood that the Reserve Bank of Australia (RBA) would decide against cutting the cash rate at its November 6 meeting.

"They might move in December, rather than November," he said.

The cash rate is currently at 3.25 per cent following the RBA's decision to cut by a quarter per cent in October.

RBC Capital Markets senior economist Su-Ling Ong said the numbers were higher in both the headline and underlying measure of inflation.

"The headline print has been by a couple of policy measures, including the carbon tax and changes to the private health insurance rebate," she said.

"They are largely stripped out in the core (underlying) measures and they have come in higher than expected.

"It's still well behaved, core inflation, but it is moving up a little bit faster than we anticipated and you'd have to argue that there is a bit more broadbased strength in prices.

"The market is going to question whether there is another rate cut on the cards.

"It's probably looking like it is a much closer call than it was prior to these numbers."

Commsec economist Savanth Sebastian said the inflation figures would not stand in the way of another rate cut.

"I don't think it's going to shift the Reserve Bank's position when it comes to rates, we're still expecting a rate cut on Melbourne Cup Day," he said.

Mr Sebastian said the underlying measures of inflation, suggested a more moderate rise in prices than the headline rate.

"The drivers of inflation were a lot of the volatile items like electricity, which was expected, and holiday travel, so I wouldn't be overly concerned with the result."

He said it was difficult to quantify the impact of the carbon tax on inflation.

"It's hard to say what the impact has been on the latest result, but it seems that any impact would be minimal given that overall inflation still remains relatively tame."

Last modified onTuesday, 28 May 2013 09:24

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