Australia Inflation May Decide RBA Rate Cut and Election Timing

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(Bloomberg) – Australian quarterly inflation data this week may be essential to knowing whether the reserve bank will finally start in a cash dilution course soon, and thus helps in determining the timing of the elections scheduled by May 17.

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While the financial markets expect that the Australian Reserve Bank will reduce the target interest rate by 70% in its meeting on February 17 and 18, many depend on the price data for the last quarter scheduled for Wednesday. Economists expect the average inflation – the most closely monitored scale and less affected by the impact of recent government discounts – will decrease to 3.3%, which is the lowest level in three years.

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The slowdown of inflation gives some comfort to Prime Minister Anthony Albaniz, whose labor government is competing with the opposition in opinion polls before the elections. With the increasing frustration of the Australians due to housing pressures and other price pressures, the Australian Reserve Bank’s decision to reduce borrowing costs from the highest level in 13 years may give Albanians who are not increasingly popular with the advocacy of voting before May.

The slowdown in price gains would justify the populist movement taken by the government to provide energy subsidies and rents to reduce the burden on families.

In Canberra, there is an increasing consensus that the government will hold the elections after the Australian Reserve Bank on April 1st in the hope of securing at least one reduction for the interest rate before polling. The Australian Reserve Bank has kept the main interest rate at 4.35% during the past 14 months and is the only main central bank that has not yet reduced the interest rate, with the exception of the Bank of Japan, which is going through a tightening cycle.

“If the basic inflation is at the level of expectations or less of it, it is clear that the political narration will be the government’s saying: We have done a great job in this regard, and we do not need a censoring monetary policy anymore.” The record economy and business statistics at the University of Monash, which is expected to wait for the Australian Reserve Bank’s decision in February before calling for the elections.

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Albanez himself did not reveal anything about the timing of the elections even though he was carrying out an active electoral campaign. The rejection of the Prime Minister of 57% is higher than the rejection of the opposition leader, Peter Daton, of 51% in the latest survey conducted by New Zear.

Read: The Australian Prime Minister offers a second term in power with the fluctuation of opinion polls

The main inflation scale also in line with expectations will exceed the estimates of the Australian Reserve Bank of 3.4%. Some economists believe that this may pave the way to reduce interest rates in February. However, there are still others skeptical. HSBC Holding Company said in a memo on Monday that employment data is also important, citing the strong job report in December.

The main inflation rate, which was partially restricted by state governments and federal government discounts, may slow in the last quarter to 2.5%, which is the middle point of the Australian Reserve Bank of 2-3%.

An analysis conducted by Westpac Banking Corp. indicates. Until the discounts reduced 0.4 percentage of the main printing in the third quarter and another 0.3 from October to December. The average inflation in 2024 could have reached 3.2% instead of 2.5% estimated without discounts.

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“Any major inflation in front of him, the two shows that inflation has decreased by more than half since we came to the government,” said Treasury Secretary Jim Chalmers, adding that if this is the case, it will also be within the range of the target scope of RBA.

High government spending in Australia – whether at the federal level or at the state level – helps support demand in the economy. Economists say that without it, the gross domestic product would have reduced in the last three months of 2024, which is scheduled to issue its data in early March.

Also, strong demand keeps the inflation of services fixed and keeps the labor market strong, while the unemployment rate remains at about 4%.

Some economists are concerned that both political aspects will unleash significant spending initiatives during the election campaign due to the racing convergence.

At the same time, the weakening of the currency may feed imported inflation.

The Australian dollar fell more than 10% in the last three months of last year, the period that witnessed Donald Trump’s victory in the elections on the fifth of November, which led to the rise in the US currency. The Australian dollar has regained some of its strength since then, although like other currencies, it is still strongly affected by US customs duties.

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Ubs Group AG and Citigroup Inc. And Westpac that politics will wait another for another months before the monetary facilitation. Even those who expect the reduction next month have their doubts.

“The suspension in February is not excluded if the Australian Reserve Bank puts more weight on its fears that the constant strictness in the labor market and the expected recovery in the growth of families’ spending still poses a bullish risk of inflation,” said Catherine Birch, the Australian Senior Economists at the Australian Reserve Bank. Anz Bank.

Even when the Australian Reserve Bank begins to reduce, most economists, including Bersh, expect the cycle to be somewhat short and shallow.

“The Australian Reserve will take a cautious approach to alleviating the restrictions imposed on the current policy settings,” she said.

– With the help of Ben Westcott.

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