It was a good result that reflected the slowing in the pace of economic growth, the downturn in global growth and the dip in commodity prices since the middle of 2022. Inflation will continue to fall in the months ahead.
Also by the Kouk:
In the March quarter, 2023, the Consumer Price Index rose 1.4 per cent - the smallest rise since the December quarter, 2021 - for an annual rise of 7.0 per cent, which is down from the peak of 7.8 per cent. The trimmed mean measure of inflation, which excludes the prices of many volatile items, rose 1.2 per cent in the quarter for an annual rise of 6.6 per cent.
For the Reserve Bank (RBA) and its meeting next week - where it will mull over the need for a further interest rate rise - the deceleration in inflation is more than it was expecting in its February Statement on Monetary Policy.
The downward revisions to the inflation outlook from the RBA will be clear. By way of example, if the headline quarterly inflation rate in the June quarter is 0.8 per cent - which is likely - annual inflation will fall to 6.0 per cent, compared with the RBA’s latest forecast of 6.7 per cent. It will be a big miss.
If the trimmed mean inflation rate also hits 0.8 per cent in the quarter, the annual rate will drop to 5.7 per cent, materially lower than the RBA forecast in February of 6.2 per cent.
Given these likely forecast misses, the RBA is set to keep official interest rates on hold at its meeting on May 2. When it revises its forecasts in the Quarterly Statement on Monetary Policy on May 5, the forecast path for inflation over the next 12-18 months will be between 0.5 and 1.0 percentage points lower than its forecasts in February.
This means inflation will return to target about a year earlier than the RBA was previously forecasting, meaning the middle of 2024 - rather than the middle of 2025 - for a sub-3 per cent annual inflation rate. The downward revision to the inflation forecast will be assisted by the relatively weak wages data, which dispels the RBA’s fear that the tight labour market will spark cost pressures – inflation in other words – for business.
The updated inflation forecast will be the key issue with the RBA’s revised economic outlook.
It is also important to note that there is a clear slowing in the domestic and international economies, a point that will deliver a material deceleration in inflation in the quarters ahead and risks pushing the unemployment rate higher than currently expected.
In simple terms, inflation is falling with the current interest rate settings.
Further interest rate rises are not needed to get inflation back to target in a reasonable time frame. Get set for many months where rates are on hold.