Did new inflation figures just ruin our chances of another rate cut?
27% of Finder's RBA panel believe the cash rate should have held last week. "At risk of undoing progress" says one economist.
As we all know by now, the RBA cut the cash rate last Tuesday - hoorah!
But some new figures came out today that mean we might not see that again soon - no hoorah.
After more than 2 years of not moving, the cash rate dropped from 4.35% to 4.10%.
The RBA cut the cash rate because the rate of inflation (how much our prices change) was back within the RBA's target after being higher for the last few years.
But Australia's core inflation higher than hoped
Inflation data released today for January shows that while we're still within the 2-3% range, the core inflation figure was a little higher than expected. That figure is the rate of inflation without particularly volatile prices (like food, energy) that can skew the main figure.
It's not bad though. It rose from 2.7% to 2.8%, so still within the range.
However many are saying it reduces the chances of further rate cuts. But the RBA has already been pretty upfront about the fact it's not expecting to cut again any time soon.
Australia isn't the only country experiencing sticky inflation.
The Bank of England cut its cash rate at the start of the month after curbing inflation... only to find out last week that its inflation rose higher than predicted too, up to 3%.
Even though the figures are still in the right range, it does lead to some questions about whether the UK (and Australia) cut their rates too soon.
Stella Huangfu, an economist from the University of Sydney, believes the RBA should have waited. 27% of Finder's RBA panel felt the same.
"The RBA should wait for clearer signs that inflation is sustainably tracking back within the target range before considering cuts," she says.
"Cutting too soon risks undoing the progress made in bringing inflation down. Ideally, the RBA should wait for a few more months of solid evidence that inflation is under control - particularly in services and wages - before making a move."
Could we see inflation go up again?
In the UK, there are predictions that their inflation could go up a little more. But luckily for us, Huangfu thinks Australia is on a different path. It doesn't mean we're completely out of the woods though.
"Although the risk isn't as high as in the UK, it's something the RBA needs to be mindful of," she says.
"Australia's inflation path is different from the UK's. The UK has been dealing with energy price shocks and Brexit-related supply constraints, while Australia's inflation has been more demand-driven.
"However, if the RBA cuts too soon and demand picks up before supply-side pressures ease, we could see a rebound in inflation."
What could that mean for Australians?
It's easy to think 'rising inflation = rate rises'. And if inflation were to get out of hand again, the RBA would act.
But Huangfu doesn't think we need to worry about that.
"A rate hike is highly unlikely," she says.
"Michele Bullock made it clear at the press conference after this month's board meeting that the next cut is still a long way off. While they will continue to monitor inflation closely, their messaging suggests they are in no rush to cut, let alone hike again."
In the meantime, let's enjoy the one rate cut we've had and take advantage of the competitive rates on offer!
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