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Cup Day rate cut calls following CPI figures
Released 27 October 2011



Inflation figures released yesterday for the September 2011 quarter have left the path clear for an immediate rate cut, according to the says the Housing Industry Association.   

HIA Senior Economist, Andrew Harvey, said the RBA has been judging monetary policy on the basis of overstated inflation figures due to revised CPI methodology by the ABS.

“In effect the RBA has been recently targeting an inflation rate of 1.75 to 2.75 per cent rather than its stated rate of 2 to 3 per cent,” he said.

“This raises fresh questions over the RBA’s retention of a tightening bias over much of 2011, but more importantly it leaves the RBA with plenty of space to cut rates by the end of this year.”

Harvey said change to recent estimates of underlying inflation is not an inconsequential issue – what is arguably the most important macroeconomic tool in the economy, monetary policy, has been managed on the basis of data that is well short of the mark.

“It adds weight to industry’s long-held view that interest rates were taken too high,” Harvey said.

He noted that when today’s (26 October) CPI outcome is considered alongside the weakness in the non-resource domestic economy, the RBA has significant room to cut rates to ensure we are well-placed to ride out any further global instability.

The headline CPI increased by 0.6 per cent over the September 2011 quarter, taking the annual rate to 3.6 per cent.

The RBA’s preferred ‘trimmed mean’ measure increased by a mere 0.3 per cent over the September quarter taking the annual rate to 2.3 per cent, while the weighted median came in at an annual rate of 2.6 per cent.