Will interest rates keep falling?

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Official inflation figures have been released by the Australian Bureau of Statistics and many believe it is likely the RBA will announce further rate cuts this year.

Wednesday, the S&P/ASX 200 (XJO.AX)(^AXJO) added $25 billion in value as investor sentiment grew upon the news. The ABS results show that headline inflation in the March quarter came in at 0.4%, which leaves the annual consumer price increases at 2.5%, up slightly from the December quarter.

The report included key price increases in education with tertiary schooling up 6.5% for the year and secondary and primary not far behind. The biggest price hikes for the year came from the pharmaceutical industry, which is not surprising given the recent results from companies like CSL Limited (CSL.AX) and Sirtex Medical Limited (SRX.AX).

Housing prices also increased, heightening speculation that house prices could be on the rebound, which would be delightful for companies in the industry, like Mirvac Group  (MGR.AX) and Peet Limited (PET.AX).

However the RBA has played down the return of the housing sector saying it will not reach its former glory. It said that the conditions are not the same as they were in the early 1990s, where consumers could borrow twice as much money as they could previously which kicked off the gains in properties right around the country.

Some of the biggest losers from Wednesday’s results came from retail clothing and footwear, household goods and services and technology. This figure is not surprising given the recent trend in online shopping drawing down prices throughout the country. In addition, fruit and vegetables were down 7% and 4% respectively.

Foolish takeaway

Market pricing shows traders are now expecting two more rate cuts to take the official cash rate target to a trough of 2.5% by January next year. These expectations of rate cuts pushed the Australian dollar down to 102.4 US cents around midday Wednesday.

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More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Owen Raszkiewicz does not own shares in any of the mentioned companies.

Market Data

  • Currencies
    Currencies
    NamePriceChange% Chg
    0.9367+0.0009+0.10%
    AUDUSD=X
    0.5574-0.0022-0.39%
    AUDGBP=X
    0.6772-0.0004-0.06%
    AUDEUR=X
  • Commodities
    Commodities
    NamePriceChange% Chg