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Feb 06 2014

Will Rising Inflation Keep RBA Rate Cuts on Hold?

ECRI has just updated its Australian Future Inflation Gauge (AUFIG). The value of this forward-looking gauge lies in its ability to predict cyclical turns in Australian inflation.

The Reserve Bank of Australia (RBA) announced a new period of stability in its interest rates after inflation closed out 2013 at a two-year high of 2.7%, putting an end to  two years of rate cuts intended to stimulate the economy. However, with the Chinese slowdown expected to act as a further drag on the already sluggish Australian economy, rising inflation is tying the RBA’s hands at a time when stimulative cuts may become increasingly important.

The latest update to the AUFIG clarifies the future trajectory of Australian inflation, indicating whether CPI growth will fall, once again opening the door to RBA action.

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