Inflation ticks above market expectations

The Australian Bureau of Statistics (ABS) has published its latest consumer price index, reporting a 1.6 per cent increase in headline inflation over the September quarter (3Q20), exceeding market expectations of a 1.5 per cent increase.

This followed a 1.9 per cent decline in the June quarter in response to the initial economic hit from the COVID-19 pandemic.

According to ANZ Research, headline inflation rebounded in 3Q20 in response to the removal of free child care outside of Victoria and a sharp increase in petrol prices.

However, the research group noted that inflation remains subdued and well below the Reserve Bank of Australia’s (RBA) target range.

“Looking forward, with the spare capacity in the labour market likely to persist, inflation at both a headline and underlying level is likely to miss the RBA’s target band for the next couple of years at least,” ANZ Research stated.

The RBA is expected to ease monetary policy further when its board meets next month, in a bid to accelerate the economic recovery from the COVID-19 crisis.   

Governor Philip Lowe said the RBA had not been convinced that further cuts would deliver “better economic outcomes”, but has now conceded they may have a role to play in supporting fiscal stimulus provided by the federal government.

Both Westpac chief economist Bill Evans and NAB Group Economics have forecast a 10 bps cut to the cash rate next month, aimed at supplementing stimulus announced in the federal budget.

[Related: November rate cut ‘all but certain’: CBA economist]