Whether inflation rises or falls, the Reserve Bank is likely to cut the official rate by another 75 to 100 basis points (0.751 percent), predict economists. Figures to be released later today are expected to show a drop in inflation, though economists are divided as to the direction of the consumer price index (CPI) for the quarter to December 2008.
This is despite a jump in figures released yesterday on the producer price index (PPI), which measures the costs of inputs to business, which rose 1.3 percent, well above expectations of a 0.4 percent rise.
While both the expected inflation rate and CPI fall outside the Reserve Bank’s target range, the declining economy will still be the main reason for any rate cut next week, says Shane Oliver, chief economist in AMP’s Capital Investors’ division.
“My feeling is that the Reserve Bank will pay more attention to the ongoing evidence of economic weakness, which if history is any guide will lead to weakness in inflation down the track,” he said. “The likelihood is in six to 12 months time we’ll be getting increasingly concerned about the prospects of deflation.”
