Inflation figures hint at possible rate cut

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The consumer price index for the September 2011 quarter confirms that in recent quarters the RBA has judged monetary policy on the basis of overstated inflation figures, leaving the path clear for an immediate rate cut, says the Housing Industry Association (HIA).

“Revised CPI methodology by the ABS means that in effect the RBA has been recently targeting an inflation rate of 1.75 to 2.75% rather than its stated rate of 2 to 3%,” said HIA senior economist, Andrew Harvey.

The change adds weight to industry’s long held view that interest rates have been taken too high and leaves the RBA with plenty of room to cut rates by the end of the year, said Harvey.

“The change to recent estimates of underlying inflation is not an inconsequential issue – what is arguably the most important macroeconomic tool in the economy, monetary policy, has been managed on the basis of data that is well short of the mark.” 

Harvey added that when Wednesday’s CPI outcome is considered alongside the weakness in the non-resource domestic economy, the RBA has significant room to cut rates to ensure the countryis wellplaced to ride out any further global instability.

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