“The question of whether they might be reduced further remains, as I have said before, on the table”, Stevens said at the Anika Foundation luncheon on Wednesday.
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In the June quarter, the CPI rose by 0.7% and an annual rate of 1.5%.
Stevens cautioned that too much easing could lead to longer-term vulnerability through risk-taking and extreme borrowing such as what occurred in the early 2000’s.
Non-tradables, or domestic inflation for goods and services that aren’t imported such as fast food and utilities, climbed 0.5 percent from the previous quarter, the report showed. Inflation for these non-tradable items ran at 2.6 per cent in the year to June, while tradable prices fell 0.3 per cent. Once, stubbornly high non-tradable costs were considered a major drawback, but in a world where deflation is the danger they are proving unexpectedly helpful.
The Australian dollar rose slightly, buying 74.29 U.S. cents after the data was released.
The weighted-median gauge of inflation, a second core measure that excludes the largest price increases and declines, advanced 0.5 percent in the second quarter, compared with economists’ estimates for a 0.6 percent gain. “The outcome should be consistent with the RBA leaving the current 2 per cent cash rate in place”.
“In terms of what the RBA would do, this is middle-of-the-road; it doesn’t change their assessment either way”, JP Morgan’s chief economist for Australia Stephen Walters told AFP. Theres a lot of chatter in the market that the Reserve Bank of Australia (RBA) may not need to loosen monetary policy further, despite falling commodity prices and a soft outlook for business investment.
“Employment growth has picked up noticeably, and hours worked have also increased”, he said.
“We all know that competitive markets, investment in education, skills and infrastructure, and adaptability, are key parts of that growth narrative”, Mr Stevens said.
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“The rate of unemployment is unchanged from a year ago, whereas we had been thinking it might be a little higher than this by now since growth in real GDP has been, according to the available statistics, below trend”.
