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Weekly Economic Commentary

Weekly Economic Commentary

Categories: General, Commodities, Weather

As if the persistence of a hot British summer and remarkable British sporting success wasn’t already providing a sufficient distraction for financial markets, the safe arrival last week of the third in line to the British throne can only add to the prevailing northern summer market anxiety. Fortunately it is not affecting our part of the world, or is it?

Locally, the release of the June quarter CPI data makes calling a rate cut at the next Reserve Bank of Australia (RBA) Board meeting “tricky” to say the least. While the latest quarterly number was in line with the RBA’s latest forecast, there was a slight upward revision to the previous quarter’s data (now +0.4% from +0.3%) which has inflation over the year to June at 2.40% – the RBA was looking for inflation to run at 2.25% through the year to June.

Furthermore, based on the most recent RBA Board Minutes, it appears that the RBA is factoring the impact of the depreciation in the currency into future CPI forecasts and with CPI being the ultimate lagging indicator; it may be some time before we see any actual anecdotal impact of the lower Dollar.

Still a higher inflation forecast due to the decline in the currency (even it is only a forecast) will limit the degree of freedom the RBA has when it comes to cutting rates further.

On balance, and despite the inflation outlook remaining in the bottom half of the RBA’s target band plus last week’s weaker than expected Chinese manufacturing data, I tend to think the RBA Board may choose to sit the August meeting out and wait for a little more information on the activity side of the economy before cutting rates again. It’s not a convincing view and as it is a finely balanced call, I therefore will not be surprised if they decide to cut either.

Source: www.ruralbank.com.au

 

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