WASHINGTON: A more subdued inflation result than economists had been expecting is unlikely to panic the Reserve Bank into cutting the cash rate from an already record low. As expected, rising petrol prices and an increase in tobacco excise were the main factors contributing to a 0.5 per cent rise in the consumer price index for the December quarter. They were partly offset by falls in the cost of international holidays and accommodation, and “waters, soft drinks and juices”, the Australian Bureau of Statistics said. It left the annual inflation rate at 1.5 per cent and below the central bank’s two to three per cent target band. Measures of underlying inflation, which smooth out wild swings in prices and more relevant to interest rate policy, grew by just 0.4 per cent on average for an annual rate of 1.6 per cent. They were also shy of expectations.”It’s a reminder of the subdued nature of economic growth in Australia after the negative growth we saw before Christmas,” shadow treasurer Chris Bowen told AAP.
Former Liberal leader John Hewson doubts the inflation result will make too much difference to the Reserve Bank’s near term strategy, saying there are so many other uncertainties right now. “If (President) Trump really starts to try and stimulate the US economy, spending money he doesn’t have, the Fed(eral Reserve) will respond with an even more decisive and rapid increase in interest rates in the United States,” the economics professor told Sky News. That will have an impact on both the US and Australian dollars. The data came as global credit rating Moody’s Investors Service stuck by its triple-A rating on Australia with a stable outlook, easing immediate worries of a downgrade.
In its regular update on Australia it says the nation’s strengths are its economic resilience in an uncertain global environment, a very robust institutional framework and a stronger budget position than many similar rated peers. It concedes the government will face political hurdles in implementing its fiscal tightening, as it rules with a very thin majority in the House of Representatives and a splintered Senate. “However, Australia’s debt burden will remain consistent with an AAA rating … general government debt will be lower than in Canada or the Netherlands, and not significantly higher than Denmark or Sweden’s – all AAA stable,” Moody’s said on Wednesday. Mr Bowen welcomed the report. but warned against becoming complacent given another agency – Standard & Poor’s – has Australia on a negative outlook. “Anyone who … thinks the triple-A rating is safe is kidding themselves,” he said.
