Inflation slows, adding to rate cut chance
Australia's inflation slowed in April, giving the Reserve Bank yet more reason to cut interest rates when it meets tomorrow to decide on borrowing costs.
The TD Securities - Melbourne Institute monthly inflation gauge increased by 0.3 per cent in April, following a 0.5 per cent rise in March, as prices on travel, clothing and footwear fell in the month.
“The first taste of inflation for the June quarter is sending mixed messages, with relatively healthy monthly growth rates for prices, but annual inflation remains comfortably benign,” said head of Asia-Pacific research at TD Securities said Annette Beacher.
Inflation rose 1.9 per cent in the year to April, according to TD Securities, following a 1.8 per cent rise in the year to March, below the 2-3 per cent target band of the central bank. In April the price of fuel increased 3.1 per cent, slowing from a 3.5 per cent increase in March, TD Securities said.
Analysts tip a rate cut from the RBA tomorrow after official Australian Bureau of Statistics first quarter inflation came in at 0.1 per cent last week, well below the 0.6 per cent rate expected by the market. The faltering inflation suggests the domestic economy has slowed more dramatically than anticipated by the RBA.
Investors currently foresee a 25 basis point cut to the RBA's cash rate tomorrow, with a 30 per cent chance the central bank will chop the rate by 50 basis points.
A 25 basis point would take the cash rate to 4 per cent, from its current level of 4.25 per cent where it has been since December. A quarter-point cut, if passed on in full to consumers, would lower the average $300,000, 25-year mortgage by about $48 dollars a month.
Banks, however, have been reluctant to give consumers the full rate cut, citing higher costs for funding and for deposits.