Reserve Bank of Australia chief Philip Lowe said the coronavirus is having a 'significant'effect' on the country's economy
Reserve Bank of Australia chief Philip Lowe said the coronavirus is having a 'significant'effect' on the country's economy

Government subsidies on electricity bills and cheaper petrol have led to a cooling down of Australia's consumer price inflation to a three-year low.

Inflation decreased to 2.7% in August from 3.5% in July, the Australian Bureau of Statistics revealed on Wednesday. Bond prices were mostly unchanged, and the Australian dollar stayed stable at $0.6891.

Market predictions said there was also a 75% chance that by December, the Reserve Bank of Australia (RBA) might start lowering interest rates, Reuters reported.

Currently, the RBA has been adamant about maintaining stable interest rates, which has dampened investor enthusiasm and made rate cuts unlikely in the near term.

Governor Michele Bullock proposed maintaining a strict monetary policy until inflation reached its goal range of 2-3%.

August saw a 3.1% decline in petrol prices, matching market predictions, and a 14.9% decrease in government energy subsidies.

Although the RBA sees this drop as positive, they are nevertheless hesitant to lower interest rates just yet, reported Invezz.

The underlying inflation appears to be easing as there were encouraging indicators for Australia's core inflation rate in August. The core consumer price inflation (CPI), which removed volatile price movers, also fell from 3.7% in July to 3%, which was within the RBA's target range of 2-3%.

Furthermore, the RBA projects that the trimmed mean inflation will stabilize at 3.5% by year's end, down from 3.8% in the previous month.

"What really matters—and as the RBA keeps reminding us—is the sustainable return of underlying inflation to target. That's still a little way off, but August's print shows momentum is moving in the right direction," Harry Murphy Cruise, an economist at Moody's Analytics, told Reuters. "We're still of the view that rate cuts won't come until February, but the risk of it being any later than that is diminishing."