Low Inflation Might Allow for a More Aggressive RBA

Falling petrol prices are expected to have kept inflation at record lows at the start of the year, increasing the chance of a Reserve Bank interest rate cut.  The consumer price index is forecast to have stayed at a 0.2 per cent pace for the second quarter in a row in the March quarter, the slowest rate in two years, an AAP survey of 15 economists showed.

The annual rate of inflation is forecast to be 1.3 per cent, the weakest pace in almost three years and well below the RBA’s two to three per cent target band.  National Australia Bank senior economist Spiros Papadopoulos said a sharp fall in petrol prices in January to below $1 a litre in some cities was the main drag on inflation.

“Petrol prices will likely also fall significantly in the second quarter, meaning another low headline CPI outcome is in prospect,” he said.  Mr Papadopoulos said low inflation will allow the RBA to cut the cash rate to boost economic growth.