Wednesday sees the release of the June quarter and 2017-18 Consumer Price Index (CPI) and don’t believe anything you might read about a boost or pressure on interest rates – nothing will happen – the Reserve Bank has made it clear.
The CPI report should show inflation remaining around the low end of the RBA’s 2-3% target range.
The market reckons quarter on quarter inflation will be 0.5%, up from 0.4% in the March quarter, with the annual rate rising to 2.1% from 1.9%.
There will be the usual seasonal increases in health costs, tobacco excise and a a big rise in petrol prices but softness in prices for food, clothing, communication and education will offset that to a degree according to the AMP’s Chief Economist, Dr Shane Oliver.
He also said underlying inflation will be around 0.5% quarter on quarter and an annual rate of 1.9%, which would be unchanged from the previous quarter.
The RBA is expecting a reading like that and as it said in the minutes of the July board meeting would be “progress towards a lower unemployment rate and an inflation rate closer to the midpoint of the target range was likely to be gradual.
The board agreed that with that in mind “they also agreed there was no strong case for a near-term adjustment in monetary policy.
“Rather, the Board assessed that it would be appropriate to hold the cash rate steady and for the Bank to be a source of stability and confidence while this progress unfolds,” and thereby resisting some juvenile calls for higher interest rates from media and some business economists.
The minutes ended with the now usual sentence “Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time,” and that is what will happen no matter the CPI reading.
