Inflation has smashed profits, so a rate cut is no sure bet
Businesses have absorbed some cost increases through lower profitability. But that may soon change and could stall further progress towards the RBA’s inflation target.
Ever since the lower than expected December quarter CPI print late last month, financial markets have been confidently pricing that the Reserve Bank of Australia would begin easing monetary policy at the February board meeting.
This should not be surprising, as the minutes of the December RBA board meeting set up a relatively low bar for sanctioning lower interest rates.
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Paul Brennan is chief economist with Suncorp and has worked at Citigroup Global Markets as well as the RBA, federal Treasury and the OECD.
