ABC News | Wed Jul 28, 2010 | 4:24pm AEST
A surprisingly soft inflation number has all but ruled out the chance of an interest rate hike next week. The ABS Consumer Price Index’s headline figure rose 0.6 per cent in the June quarter compared with the previous quarter – that was well below the median analyst forecast of a 1 per cent rise. Of the 21 economists surveyed by Bloomberg the lowest estimate was for a 0.8 per cent rise, while many economists were a long way off the mark, with one forecasting a 1.2 per cent surge. The relatively modest 0.6 per cent June quarter increase leaves headline inflation at 3.1 per cent for the year to June. But the two measures of underlying inflation preferred by the Reserve Bank, which take out the most volatile price movements, rose only 0.5 per cent in the quarter. That meant the rate of underlying inflation was 2.7 per cent for the year to June, well inside the Reserve Bank’s 2-3 per cent target band. St George Bank’s chief economist Justin Smirk says today’s inflation data has taken the chance of a rate hike off the table at the Reserve Bank’s August meeting next Tuesday. "It is without a doubt highlighting that right now the RBA does have clear time to wait, pause and ponder on the global events and just how our own economy is making the shift from being driven by public stimulus and back towards more private investment," he told Reuters. "So, there’s no rate-hike next week."
Longer rate pause
RBC Capital Markets senior economist Su-Lin Ong had been forecasting a much higher result of a 1.1 per cent headline inflation rate for the quarter. She says today’s soft figures may see the Reserve Bank keep interest rates on hold for some time to come. "I think the odds of further hikes have fallen quite substantially given today’s numbers," she told ABC News Online. "We think it’s unlikely the Reserve Bank will hike next week at its August board meeting and there’s a good chance that this pause that we’re seeing in this tightening cycle, that began quite aggressively, there’s a very good chance that this pause becomes extended and the RBA sits on the sidelines for the next few months at least." The Australian Chamber of Commerce and Industry’s Greg Evans says an extended pause is certainly what business is hoping for. "This firmly puts a rate rise in August on the backburner and indeed off the agenda," he said. "We believe that’s unambiguously good news for both business and also consumers,