Inflation figures rule out rate cuts

The latest inflation figures have fallen below forecasts but are likely to put a halt to further interest rate cuts, according to leading economists.

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Inflation rose 0.1 per cent in the March quarter, for an annual inflation rate of 2.5 per cent, according to the Australian Bureau of Statistics.

Market economists had expected today\’s figures to reveal an annual rate of 3.9 per cent.

ICAP economist Adam Carr said the rise meant the Reserve Bank of Australia would hold off on a rate cut for the next few months.

“The trims and the weighted median are both one per cent plus,” he said.

“For an economy that\’s slowing we really should be seeing core inflation going in the other direction.”

“I don\’t think it will spark alarm bells, but in my view it rules out a near term rate cut.”

UBS senior economist Matthew Johnson said: “I think the RBA still have confidence that things will come down in due course,” he said.

“It\’s not going to encourage them to cut rates any faster.”

“The last thing the central bank wants is for inflation to be too high when recovery starts.

“This number definitely tells me they will be on hold for a little while.”

ANZ senior economist Katie Dean said higher than expected core inflation presented a mixed bag for markets.

“In terms of headline numbers, they were brought down significantly by a few very large movements in one off items,” he said.

“They weren\’t necessarily evidence of disinflation.

“It was a mixed bag for markets.”

She said markets would price out a rate cut in May because of the rise, but rate cuts down the track were still a possibility.

“It doesn\’t stand in the way of further interest rate cuts,” she said.

“But the fact that core inflation is still stubbornly high in the short term won\’t be a concern to the RBA, who are more forward looking.”

We\’re confident that as domestic demand eases, inflation will continue to ease from here.

In the short term, the market might price out the chance of a rate cut in May.