Deflation renews pressure on Reserve Bank

Adam Smith 28 April 2016

The states where new home sales are droppingThe Reserve Bank will be facing added pressure when it meets next week after Australia experienced deflation for the first time in seven years.

Figures from the Australian Bureau of Statistics (ABS) have shown the consumer price index (CPI) contracting for the three months to the end of March. The result put the annual inflation rate at 1.3%, down from 1.7% and well below the RBA’s 2-3% target band.

A NAB Economics release said the CPI reading was the lowest quarterly and annual rate since the Reserve Bank began its inflation targeting. NAB blamed the low reading on “a wide range of factors”.

“Some are clearly cyclical, like lower energy prices, and seem more permanent, like the very low level of wage growth despite a falling unemployment rate. Few of the factors behind low inflation represent a particular signal of demand weakness in the Australian economy – especially the non-mining economy,” NAB Economics said in a release.

The RBA’s historic moves

In the most recent Reserve Bank survey, 97% of the experts polled correctly forecast that the Bank would remain on the sidelines in April. Sixty per cent of the experts surveyed predicted the RBA’s next move would be an upward one.

The next Reserve Bank survey will be released this weekend.

For more on the future path of the RBA, read our guide.

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