Economists say CPI would sway RBA’s next moves on interest rates
The Reserve Bank of Australia' (RBA) July board meeting minutes gave away clues that steady price increases seen in the last three months leading to June would be considerable factors that could sway its interest rates decision come the board's next meeting in August 3.
And with the fresh round of official inflation data set to be released next week, the federal government, the opposition, the central bank governor, the country's economists and the ordinary working families were left waiting for favourable figures, hoping that the numbers could encourage the RBA to grant another reprieve for most Australians who were in the midst of servicing debt repayments.
However, if the AAP survey of 11 economists is to be believed, the great majority of those polled have chorused that the consumer price index (CPI), which is the key indicator of inflation, would jump by 1.0 percent in the June quarter, en route to an annual rate of 3.4 percent.
Ray Attrill of 4Cast Financial Markets is expecting that the central bank would push the cash rate to 4.75 percent should the inflation data would prove to be higher than anticipated as he stressed that "the case has to be unequivocal, because of the election."
As hinted by the RBA's board meeting minutes in July, board members were so much concerned on spiking inflation numbers that a likely August cash rate increase was not ruled out, while the recent decision by the government to impose a 25 percent excise tax on the tobacco industry could add up to the mounting reasons why the interest rate would move upward, according to some experts and RBA sources.
Analysts are also speculating that the RBA is increasingly becoming concern on global economy developments, further punctuated by US Federal Reserve chair Ben Bernanke's economic outlook of 'unusually uncertain' growth potential for the US economy.
Mr Attrill said that the RBA could not help but be wary of the stability of European economies and their banks as they wiggle their way out of the debt crisis, which should "offer a pretext to duck an unusually high inflation print next week and leaving the RBA threading a fine line."
On his part, Nomura Australia chief economist Stephen Roberts said that the country's central bank would have to lift the cash rate in August as it prepares for a 'stitch in time' procedure even if the inflation data would show under three percent year-on-year, as he predicted that only moderate price hikes would be seen in food and housing while huge increases would beset the tobacco and alcohol industry.
Mr Roberts said that the RBA would eventually push the cash rate to 5.25 percent over the coming nine to 12 months, with much consideration on quarterly CPI results, as he stressed that "they will next pause for an extended period of time when we get to 5.25 per cent and it will take three CPI prints to get there."