The Reserve Bank of Australia could resume its rate-cutting policy trajectory after official data showed the weak inflation that has “afflicted” its counterparts elsewhere in the developed world could be emerging in its economy.

The central bank has not cut rates for a year since, previously, economic data appeared to be supporting its decision to hold fire. With unemployment at a 2-year low and business confidence robust, the RBA was not expected to stimulate the economy further.

The latest CPI data, however, showed tradable goods, which are influenced by the currency and other dynamics, rose 0.6% in the first three months from the same period last year. Non-tradable goods, which are affected by domestic variables, climbed 1.7% over the period, the weakest data since the second quarter of 1999.

“The RBA’s had some success rebalancing the economy away from its over-reliance on commodities-related exports so the inflation data will be most unwelcome,” said Monica Freeman, chief markets strategist at Monex BMO Securities.

“There was a time when low inflation was desirable and boosted a currency’s value but it seems as if the laws of economics have been inverted and now, more inflation is desirable since, according to theory, consumers and businesses will spend now fearing price rises later on,” said Freeman.

Developed economies including the US, Europe and Japan, have had difficulty generating inflation as wage growth remains subdued despite tightening labor markets. Central banks have used unconventional policy tools to arrest the “problem” with poor results. The odds on an RBA rate hike quadrupled after the CPI report.

About Monex BMO Securities
Monex BMO Securities is a privately held, fully independent investment and wealth management leader, with retail operations based in Toronto, Canada and corporate trading division headquartered in Tokyo, Japan.

From our offices in Toronto the capital city of the province of Ontario and financial and business capital of Canada, we serve private individuals and families from N. America to Europe and with our corporate trading division strategically located in Tokyo, Japan, we have unrivalled access to Asia’s high yielding emerging markets, access to corporate resources, private equity and global mergers and acquisitions.