Australian Economy Showing a Marked Rebound, Inflation Not Likely to Worry RBA Just Yet

January 26, 2021 Updated: January 27, 2021

The Australian economy is showing a marked rebound from its first recession in decades, but the improvement is unlikely to alter the outlook for interest rates while inflation remains extremely subdued.

The latest consumer price index is expected to show benign price pressures overall, with government stimulus measures keeping the lid on some categories.

Economists’ forecasts centre on a 0.7 percent quarterly rise in the CPI, which will also keep the annual inflation rate at 0.7 percent, well below the Reserve Bank’s two to three percent target band.

Underlying measures of inflation, that are more sensitive for interest rate policy considerations and smooth out wild price swings, are expected to average a subdued 0.4 percent for the quarter and 1.1 percent for the year.

The impact of the coronavirus pandemic on prices has resulted in some extreme quarterly movements in the CPI over the past nine months.

However, the effects of COVID-19 on inflation are now subsiding, the Australian Bureau of Statistics said earlier this month, laying the groundwork for figures being published on Jan. 27.

The ABS said government schemes introduced to support households hit by coronavirus, such as construction grants, would put some downward pressure on inflation figures for the December quarter.

The Reserve Bank has repeatedly said it will not raise the cash rate until inflation is sustainably within the target band, which is unlikely to happen before 2023.

Wednesday will also see the National Australia Bank monthly business survey, which provides an insight to conditions and confidence.

Colin Brinsden in Canberra