But the RBA will also be influenced by the latest labour market read, which shows unemployment has remained stubbornly low. That will feature as a large tick in the column for continuing to raise rates.
That said, the February inflation data released on Wednesday adds another dot point to what is clearly a downward trend in inflation. It is significantly less threatening. In February, inflation rose by 6.8 per cent – that’s a decent improvement on the 7.2 per cent figure for the 12 months to January and the 8.8 per cent in December.
Sure, inflation remains elevated above the target 2 to 3 per cent band, but it is not expected to return to that level before 2025.
Not surprisingly, economists were hedging their bets, with Wednesday’s inflation figures pushing more of them into the ‘pause’ side of the ledger. And markets are unequivocally punting on rates being held at 3.6 per cent.
The case for leaving rates on hold is buttressed by the fact that many of the biggest contributors to February inflation came from essential categories. Food and non-alcoholic beverages were up 8 per cent, housing rose 9.9 per cent, and electricity was up 17 per cent. The price increases in these categories are largely driven by supply rather than excess demand.
The discretionary categories like clothing (up 3.7 per cent) and alcohol (up 4.5 per cent) showed much clearer signs of slowing in as consumers tapered their spending.
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The softer demand for discretionary spending is still not showing up in the trading figures of many retailers. Premier Retail’s results, released this week, printed a 7.7 per cent rise in sales for February and early March.
Commentary from other retailers like Myer and David Jones also points to largely robust sales this calendar year.
But even if the RBA decides to take a breather on rates in April, it doesn’t necessarily mean that will mark the end of the monetary tightening cycle. May will demand a fresh test of the RBA’s resolve.
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