Weak CPI To Trigger RBA Easing This Week - BofA Merrill

Weak CPI To Trigger RBA Easing This Week - BofA Merrill

2 May 2016, 20:33
Vasilii Apostolidi
0
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We expect the RBA will be forced to pull the trigger and ease rates at the meeting on 3 May with both headline and ‘core’ inflation falling well below the target band. To date the inflation outlook has not been driving monetary policy, with the Reserve Bank of Australia (RBA) focused on the outlook for growth and the labour market. But with inflation measures significantly disappointing the RBA’s expectations, the question now turns back to the RBA’s key mandate. Given the broad-based nature of the weakness, it seems challenging for the RBA that they could pass this off as transitory. 

The RBA has been comfortable that underlying inflation would sit between the 2-3% target-band over the forecast horizon. As such, the RBA has been focused on the outlook for growth and the labour market. Now, with inflation falling well below target (and reaching the lowest annual rate in the history of the series), we think this presents a material case that the RBA will ease policy. This is especially true as there appears to be few downside risks to the RBA providing additional stimulus to the economy with a slower housing sector evident. We believe the RBA will go down this path. 

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