Inflation falls. Core flirting with the bottom of the RBA range

Today’s release of CPI data for the third quarter showed inflation falling once again. The headline CPI rose by just 0.5% q/q (+0.7% Q/q previously) while the annual rate remained stable at +1.5%.

However, the measures that the RBA watch, namely Trimmed Mean and Weighted Median, were each up just 0.3% q/q for annual increases of +2.1% and +2.2% respectively. This means that the average core inflation has fallen from +2.3% in the previous quarter to just +2.15% this quarter. This places average core inflation perilously close to the bottom of the 2-3% RBA target range.

While this in itself is unlikely to force the RBA into a Melbourne Cup day rate cut, when considered in conjunction with the recent 15-20 bps hikes put through by the Big Four banks, the pressure for a move will have certainly increased. At the time of writing the futures markets are pricing a 25bps cut to a record low 1.75% next Tuesday at a little greater than 50:50.

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