Altair Asset Management

Producer prices are weak or falling – in much of Asia falling sharply. There are lumps and bumps in oil prices driving undulations in headline inflation rates around the world, but there has been and still is a powerful disinflationary force in play. In Australia, persistently low wages growth was perhaps the single factor that blind-sided the RBA. Given the demand constraints faced by many Australian companies and the budget constraints at all levels of government in Australia, there are no signs that wages growth will accelerate anytime soon. Low wages growth is also likely to act as a constraint on growth in household spending. Inflation stays very low as a result. Cutting interest rates will help to ensure that demand, especially interest rate sensitive demand, is stronger than it would otherwise be. In that sense cutting, interest rates is an effective policy response. It provides no guarantee that growth will improve, but it may prevent the slide in growth that might otherwise occur. (Stephen Roberts, Chief Economist)


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