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Feb 05 2015

The Inflation Cycle and Central Bank Rate Cuts

ECRI has just updated its Australian Future Inflation Gauge (AUFIG), the value of which lies in its ability to anticipate cyclical swings in Australian inflation.

The Reserve Bank of Australia unexpectedly cut the official interest rate to a record low of 2.25% this week, joining a growing number of central banks that have eased monetary policy of late. The announcement sent the Australian share market soaring and saw the Australian dollar, which has already weakened considerably against the US dollar, slip further. But should the rate cut, in an environment of below-trend economic growth and disinflationary pressures, have come as a surprise?

In our latest AUFIG update, we clarify the outlook for Australian inflation, shedding light on its future trajectory and its implications for monetary policy.

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One of 2014's biggest surprises – falling oil prices – is completely consistent with our timely call on global growth. When made last July, that forecast was opposed to the consensus view. More