Australia posted annual headline inflation at 1%, a 17-year low.
Core inflation, which is what markets watch when trying to judge the course of official interest rates, came in at 0.45% quarter-on-quarter and 1.5% year-on-year. That core reading of 1.5% is an all-time record low.
However, the data was just a touch hotter than the 0.4% quarter-on-quarter result expected and the market is now suddenly divided on whether there the RBA will deliver a cut to the official cash rate next week.
There remains a very strong case for a cut, however: looking at the details below the headline numbers in today’s consumer price inflation data, it’s clear there remains an almost complete absence of inflationary pressures in the economy that might start to drive the core rate back towards the RBA’s target range of 2-3%.
This is excellently summarised by Tim Toohey, Andrew Boak, Bill Zu of Goldman Sachs in a note to clients this afternoon.
Here’s an excerpt from the Goldman team, who expect the RBA to cut next week.
The 3 key facts from the inflation data that cannot be ignored are: 1. Headline inflation is running at the weakest in 18 years and is decelerating. 2. Underlying inflation, defined as the average of the trimmed mean and the weighted median measures, is running at the equal weakest since the data became available 14 years ago, with a broad downtrend in annual inflation still identifiable. 3 Inflation does not take into account the two areas that Australian economists have long regarded as the primary source of future inflation – tradables and the non-tradables services sector. It is notable that the prior weakness in the A$ has again failed to drive tradable inflation with tradables ex-petrol and tobacco remaining flat in the quarter and declining -0.1%yoy. Moreover, despite some business surveys suggesting strength in demand in the services sectors, the inflation data shows private sector services inflation declining -0.2%qoq to just 1.0%yoy.
Tuesday, when the RBA meets, is going to be huge.