The June quarter inflation data will set a framework for the next few months for analysis of inflation pressures and which biases on monetary policy the Reserve Bank of Australia should have.
For two years, the underlying inflation rate has been tracking below 2 per cent which is below the bottom of the target band for the RBA. Yet, it has been a year since the RBA last cut official interest rates as its focus has been on Sydney and Melbourne house prices. This has arguably been at the expense of growth, employment and the inflation target. Market economists are forecasting underlying inflation to rise 0.5 per cent for the June quarter, which would leave the annual increase at 1.8 per cent – again below target.
All of which suggests the inflation-targeting RBA should be cutting interest rates but with its on-going emphasis on house prices in parts of the country, it is unlikely to do so. Well, not for the next few months.
