Cash Rate stays at 4.35%
Headline Inflation Drops: False Positives?
Headline inflation falls to 2.8% for the Quarter ending September compared to 3.8% for the Quarter ending June which is between the target range of 2 – 3% set by RBA and this must have called for a cash rate cut providing relief to existing mortgage holders. The Central Bank chalked up this decline in headline inflation to the government subsidies in the form of electricity rate cuts and other relief measures like the Commonwealth Rent Assistance program to bring rental inflation down. Even after these measures, the trimmed mean inflation that impacts policies more prominently was 3.5%, which was still way above the inflation targets. Services Inflation stayed sticky, raising concerns.
Future outlook – Charting into unknown waters ahead
Strong Demand: RBA maintained its stance on the fact that the economy has comparatively strong demand compared to supply supported by the sticky underlying inflation.
Mixed signals in Consumer Demand: RBA noted that there has been a decline in disposable incomes of the households with the savings ratio reducing as well and this has forced their hand to reduce discretionary spending but at the same time highlighted the fact that demand remained at steady levels from students and tourists.
The Labour Market remains tight but at the same time participation rates climb to new high levels: Vacancies have started to show improvement the majority of indicators have stabilized, and participation rates have improved. Productivity is still weak in the market with easing pressures on wages.
RBA also observed that policy measures have been broadly restrictive and from a high-level perspective inflation levels are tracking their overall goals. Still much has to be observed before a wide level of policy changes are made, some banks have started easing monetary policies looking at the declining inflation levels but they have been selective with the underlying risks as well.
Central Bank Eyes Sustainable Economic Growth
RBA has clearly outlined that it is closely monitoring various economic lead and lag indicators and would keep course correcting its monetary policies to ensure that the Australian economy returns to sustainable levels without any chances of getting torn between inflationary pressures affecting the Aussie Households and sustained supply-demand disparity that is, in turn, driving the cost of living up consistently.
The Aussie households would have to stay patient as the central bank has indicated that there will be no new cash rate cuts at least not this year.
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