Tame inflation data and market turbulence unlikely to sway the RBA

Australia's December quarter CPI confirms that inflation remains benign and that the inflation outlook does not pose an obstacle to further monetary stimulus. The RBA's preferred measures of underlying inflation increased by 0.5%-0.6% and are now 2% higher than a year ago. But the tame inflation data are unlikely to sway the RBA board at next week’s meeting. In the central bank's latest communication about the inflation outlook it expects underlying inflation to remain around 2% over the course of 2016. I have long held the view is that more monetary stimulus is necessary to revive animal spirits in the corporate sector, particularly given that the economy is on the precipice of a capex cliff; business intentions suggest that capital investment is set to decline by 20% in nominal terms in 2015/16. But the reluctant rate cutter seems to be content with the economy growing at a sub-trend rate for a while longer, and probably wants to see more tangible evidence of a cooling property market and slowdown in investor lending for housing before cutting rates again. (VIEW LINK)

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