Inflation figures to ‘make or break’ the case for an Australian pre-election February rate cut
Inflation figures to ‘make or break’ the case for an Australian pre-election February rate cut
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Release of December quarterly CPI may be the most politically consequential set of numbers in recent times. Inflation figures due out on Wednesday could “make or break” the case for a pre-election rate cut next month, according to economists, in one of the most politically consequential set of numbers of recent times.
The market is pricing in an 84% chance of a 25 basis-point rate cut when the Reserve Bank of Australia (RBA) meets mid-next month, although those odds will rise or fall based on the December quarterly consumer price index. While the RBA has forecast for the trimmed mean (an underlying inflation rate that strips out volatile price swings) to come in at 3.4%, recent monthly data suggests the quarterly figures could come in lower.
The chief economist at Betashares, David Bassanese, said a 3.2% result would “cement” the case for a rate cut, 3.3% would make it a “line-ball” decision and 3.4% would probably mean no rate cut in February. “It will make or break the decision,” said Bassanese, who has forecast a rate cut-cementing 3.2% reading on Wednesday. “A rate cut would help lift the squeeze on households and mortgage holders would obviously directly benefit.
“A cut could also psychologically lift some of the caution around households and just be seen as a vote of confidence in the economy.”. Sign up for Guardian Australia’s breaking news email. The official cash rate has sat at an elevated 4.35% since November 2023, while the last rate cut occurred in November 2020 as part of a policy to stimulate a pandemic-stricken economy.
