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Inflation is back to target, but the RBA wants to see much more before it pulls the trigger on a rates cut

Any suggestion that Wednesday’s better-than-expected inflation figures could lead to an early interest rate cut has been well and truly dispelled by RBA Governor Michele Bullock. This week’s monthly data – considered less important than quarterly numbers – had the consumer price index steady at 2.1 per cent, well within the lower range of the Reserve Bank’s 2-3 per cent target. That followed quarterly figures from September which had the CPI at 2.8 per cent.

Inflation is back to target, but the RBA wants to see much more before it pulls the trigger on a rates cut

RBA Governor Michele Bullock has once again poured cold water on the idea of ​​an early interest rate cut. (Louise Kennerley) While that’s the lowest it’s been since the height of the pandemic, concerns around how sustainable the fall is are what’s stopping the RBA from pulling the trigger on a rates cut.”There is still some way to go to return inflation sustainably within our 2–3 per cent target range,” she told the Committee for Economic Development of Australia during a speech last night.”The word ‘sustainably’ is important because it recognizes that we need to look through temporary factors that influence the headline inflation rate from time to time…”While these temporary factors have undoubtedly helped many Australians, our approach is to look through them to some extent to better understand where inflation will settle in the medium term.”The RBA forecasts inflation won’t be sustainably back in the middle of the target range until 2026, and Bullock said current low joblessness levels are also standing in the way of a cut.“The unemployment rate is currently hovering around 4.1 per cent, which is notably low by historical standards and compared with many other countries,” she said. “In addition, the increase in the unemployment rate over the last two years has been significantly smaller than some other countries.” However, Bullock noted inflation could come back to target quicker than expected, and the bank would change its stance accordingly if it did. Following her speech, she was asked about the impact of US President-elect Donald Trump’s plans to slap huge trade tariffs on Canada, Mexico and China.While the policy is expected to send inflation up in the United States, Bullock said there’s a chance it will have the opposite effect on Australia, although she also cautioned it’s far too early to judge the economic impact of the new administration.

Inflation is back to target, but the RBA wants to see much more before it pulls the trigger on a rates cut

Donald Trump’s trade tariffs could provide an unexpected benefit to Australia. (AP Photo/Evan Vucci)”Trade moves,” she said. “So if there are large tariffs… Chinese trade will probably try to find other ways to find an outlet.” Australia might even be a beneficiary of that. So we might, in fact, find some deflationary impacts for Australia if it rolls out that way.” Bullock’s speech came as federal parliament finally passed long-proposed laws to reform the Reserve Bank, including by creating a second board that will specifically focus on interest rate settings. The dual-board structure is set to come into effect in March, in time for the central bank’s second cash rate decision of 2025.

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