Rate cut hopes could be dashed by inflation spike

Adam Smith 4 July 2016

arrow up moneyThe odds on an August rate cut may have just gotten longer after a spike in inflation.

The Melbourne Institute Monthly Inflation Gauge has risen by 0.6% in June after a 0.2% fall in May. For the 12 months to June, inflation was up 1.5% compared to 1% for the 12 months to May.

The rise was driven by price increases for automotive fuel, holiday travel and accommodation and fruits and vegetables.

Melbourne Institute senior research fellow Dr Sam Tsiaplias said the rise had largely offset May’s decline.

“Given this rise, it seems unlikely that we will get a repeat of last quarter’s negative CPI result for the current quarter,” he said.

The rise could put a damper on widespread expectations that the Reserve Bank will cut the official cash rate in August. The RBA is expected to leave rates on hold when it meets tomorrow, with 97% of the experts polled in finder.com.au’s monthly Reserve Bank Survey predicting the RBA will not move on rates in July.

Official inflation data is due from the Australian Bureau of Statistics on July 27, and the result could largely determine the Reserve Bank’s course of action in August. While the Melbourne Institute’s gauge did see a sharp rise, inflation remains below the RBA’s 2-3% target band.

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