inflation data for the second quarter due today could move australian markets 1734002015

Australia reports inflation data for the second quarter today at 11:30 AM (AEST), and the data will have a major bearing on the RBA’s interest rate decisions down the line.

In the minutes released yesterday of its monetary policy meeting held on July 7 the RBA said: “Spare capacity remained, as evidenced by the level of the unemployment rate, historically low wage growth and unit labor costs that had been stable for a number of years. On this basis, members assessed that inflationary pressures were well contained and likely to remain so in the period ahead.”

The RBA also said its monetary policy henceforth, aimed at fostering sustainable growth and inflation consistent with the target, would be determined by economic and financial conditions.

The RBA has an inflation target of between 2 – 3 per cent.

Economists expect that a hike in petrol prices, as well as a weak Australian dollar, would likely lead to a rise of 0.8 per cent in CPI during the June quarter, and 1.7 per cent year-on year, up sharply from the corresponding March quarter figures of 0.2 per cent and 1.3 per cent respectively. The March numbers were the weakest seen in nearly three years.

On underlying inflation, which excludes its more volatile components, economists forecast a quarter-on-quarter rise of 0.6 per cent and 2.2 per cent annually.

The forecasts are therefore well within the RBA’s preferred range.

If the actual numbers are more or less in line with forecasts, the RBA may favour interest rates unchanged at its August meeting, unless other economic compulsions force it to consider a rate cut. The RBA is currently holding the benchmark cash rate at a record low of just 2 per cent, after having cut the rate by a cumulative 275 bps since November 2011.

“Given the risks to the economic outlook continue to sit on the downside, particularly with regards to capital investment and exports, it appears likely that the bank will be forced to cut rates again before growth begins to improve,” said an article in The Australian yesterday.

However, economists are likely to pay close attention also to the speech by Glenn Stevens, RBA Governor, to the Anika Foundation Luncheon, Sydney, today at 1:05 PM (AEST).