RBA interest rates: Inflation posts slight fall ahead of April meeting

Economists have talked down the chances of back-to-back interest rate cuts when the Reserve Bank meets next week, despite inflation cooling slightly.

Both key measures of prices slowed in the Australian Bureau of Statistics’ monthly inflation report released on Wednesday.

Headline inflation was 2.4 per cent in the year to February, down from 2.5 per cent in the previous month.

The improvement was chalked up to easing rent and home-building costs, power bill rebates, and falling fuel prices.

Core inflation — which strips out volatility and is closely watched by the RBA — also softened from 2.8 per cent to 2.7 per cent. The central bank wants that number to hit 2.5 per cent, the middle of its target zone.

But the Reserve will likely brush off the latest figures and focus on the quarterly data due at the end of April, which gives a fuller picture and includes broader data.

The RBA’s new monetary policy board will meet on Monday and announce its rate call on Tuesday, after lowering the official interest rate to 4.1 per cent in February.

Markets had overnight judged an 8 per cent chance that the RBA will reduce interest rates at the meeting next week.

There’s greater confidence in a cut at the following meeting in mid-May. A move by July is considered by investors to be almost certain.

“The RBA was too hawkish in its rhetoric last month to consider a cut at this meeting,” Westpac chief economist Luci Ellis said.

She said data on jobs, wages and spending would be crucial to determine the chances of a move in May.

Also tipping the central bank would hold fire were KPMG and AMP.

AMP economist My Bui said the latest figures were “more positive news”. Yet the RBA would remain cautious, amid signs of improvements in consumer confidence and household spending.

The looming global trade war would worry the central bank, Ms Bui warned.

“We believe the next rate cut would be in May, following the release of the comprehensive tariff reviews from the US and the full quarterly inflation figures for Australia,” she said.

Adding to the case for the RBA to go slowly would be low unemployment of just 4.1 per cent, and a recovery of economic growth. Growth doubled in the December quarter after extended weakness.

It comes after Treasurer Jim Chalmers projected $150 billion of deficits over the next four years in a pre-election Budget on Tuesday, which also dished out $17bn of income tax cuts.

Lobbyists lined up to slam the Government for a lack of economic reform.

Economists at ANZ, Betashares and Moody’s Analytics all tipped the impact on inflation to be low because the deficit was close to their expectations.

“It’s difficult to balance the need to keep domestic inflation cool, while also managing heightened global economic headwinds,” Moody’s Analytics head of Asia-Pacific Economics Katrina Ell said.

“The budget shows noteworthy restraint not stoking inflation.”

ANZ said the tax cuts were not expected but would not impact the bank’s inflation forecasts.