RBA weighs rate cut as inflation falls to 4.1%
Annual inflation in December 2023 was 4.1%, down from 5.4% the previous quarter, but still above the Reserve Bank of Australia's (RBA) 2-3% target band.
This marks the fourth consecutive quarter of declining annual inflation, down from a peak of 7.8% in December 2022.
Meanwhile, trimmed mean annual inflation was 4.2% in the December quarter, lower than 5.1% in September 2023, and the peak of 6.8% in December 2022.
Notable price increases this quarter included tobacco (7%), new dwelling purchases by owner-occupiers (1.5%), domestic holiday travel and accommodation (3.9%), and medical and hospital services (1.2%).
HSBC Australia and New Zealand chief economist Paul Bloxham says yesterday's data is a sign that the economy is heading in the right direction, with falling inflation in the December quarter. While further interest rate hikes are unlikely in the near term, rate cuts may be some time away.
"We think the RBA will see today's figures as good news, which will mean they do not have to hike further. At the same time, we think it is too early to be talking about rate cuts," he says.
Elsewhere abroad, as anticipated, the US Federal Reserve also held its policy rate steady following its meeting on Wednesday.
However, in response to significantly lower inflation, the Fed abandoned previous guidance that left the door open for future rate hikes, opting for more neutral guidance that could lead to rate cuts in the coming months, according to GSFM investment strategist Stephen Miller.
The Fed acknowledged that the risks to achieving its employment and inflation goals are becoming better balanced, hinting at possible adjustments to its target range, after previous talk of additional policy firming, Miller says.
Still, the Fed made it clear that an immediate rate cut isn't imminent, stating that it doesn't expect to reduce the target range until it gains greater confidence that inflation is moving sustainably toward 2%.
During a press conference, Fed chair Jerome Powell pushed back against the idea of a policy rate cut in March, calling it "unlikely" as a result of the lingering uncertainty in achieving the 2% inflation objective.
Powell did mention a potential easing of policy restraint later in the year, but with caution regarding inflation progress.
This article first appeared on Financial Standard
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