Rate cut in Australia tipped after CPI

Economists say another interest rate cut is almost guaranteed after official data showed inflation has continued to slow.

The consumer price index (CPI), the key measure of inflation targeted by the Reserve Bank of Australia (RBA), was unchanged in the December quarter, data released by the Australian Bureau of Statistics (ABS) yesterday showed.

The annual headline rate of inflation is now 3.1 per cent, down from 3.5 per cent as reported in the September quarter figures.

Economists' forecasts for the headline CPI had centred on a rise of 0.2 per cent in the quarter for an annual pace of 3.3 per cent.

The data also showed the seasonally adjusted CPI rose 0.2 per cent in the December quarter.

Commsec economist Savanth Sebastian said the weaker than expected figures added to the case for the RBA to cut the cash rate in February. "I think it is a done deal now that the Reserve Bank will cut rates.

"The Australian economy has been quite sluggish, global growth forecasts have been cut and I think the Reserve Bank will take out a little bit more insurance in these volatile times."

The RBA cut the cash rate by a quarter of a percentage point in November and by the same amount in December.

Commonwealth Bank chief currency strategist Richard Grace said that as the CPI was in the middle of the RBA's target band of 2 to 3 per cent annual inflation, there was no reason for the central bank to keep rates on hold.

Grace noted that clothing, footwear and non-alcoholic beverages were the categories that declined in the quarter.

Fruit, pharmaceuticals, audio-visual equipment and international holiday travel and motor vehicles were relatively flat while there were gains in domestic holiday travel and accommodation, rent, telecommunication equipment and beer.

St George Bank chief economist Besa Deda said that relatively contained underlying inflation would be dwarfed by global concerns when the RBA board made its rates decision on February 7. "We saw further evidence of the darker global growth outlook from the confirmation that the IMF has downgraded the world outlook."

- AAP