McCrann: Inflation figure kills hopes of imminent rate cut

The latest monthly inflation numbers from the ABS rule out an interest rate cut at the Reserve Bank’s next meeting in mid-June.

Yet, I have a sense, that the current rates limbo – the RBA hasn’t changed its rate now for six months – is close to breaking.

Let me put those two statements together – kicking off with the RBA telling us, a week ago, that it considered a rate HIKE at its last meeting, held just one week before the budget.

Now, I suggest there never really was any prospect, that Governor Michele Bullock would have led her board to delivering a – decidedly surprise - hike.

That would have meant stepping off the “narrow path’’ that she and her predecessor Philip Lowe have tried to stay on – accepting a slower fall in inflation, hopefully, to stop the jobless rate shooting to and above 5 per cent.

Nothing really has changed from three weeks ago.

Higher petrol prices were in part to blame for the higher than expected inflation rate in the 12 months to April. Picture: NCA NewsWire / Damian Shaw

We have a, slowing economy. But with inflation seemingly stuck tantalisingly close above the 2-3 per cent target band, at around 3.5 to 4 per cent.

Simply, too high for Bullock to declare victory and deliver a cut next month.

But also, not forcing her to now deliver the hike discussed three weeks ago.

Yet, and yet, I think we are tantalisingly close to a rates shift – and a shift to a cut more likely than a hike.

Crudely, say, with the jobless rate kicking up to 4.5 percent, or even higher, in either the June or July numbers.

Equally though it could become untenable for Bullock to persist with her ‘tolerance’ of it taking to the end of next year to get inflation back below 3 per cent.

The key will be the full June quarter inflation numbers that pick up – higher – inflation across sectors of the economy that are not in the partial monthly numbers.

This would, be the case, if again rather crudely, we got a June quarterly inflation number anywhere close to the March quarter’s full 1 per cent.

Again though - an important qualification to that - not if, for example, we had also seen a week or so before the CPI number, the jobless rate really leapt, to near or above 5 per cent.

The monthly inflation numbers actually took a – very slight – kick higher. From 3.5 per cent over the year to March to 3.6 per cent in the year to April.

But that was nowhere near enough to cause the RBA to carry through with a hike in mid-June.

Governor Bullock knows people are hurting – bluntly, that the existing level of interest rates is, if slowly, ‘doing its job’.

It’s not only Australians as consumers who are hurting. The data on retail sales Tuesday, showed sales falling – plunging in real per capita terms.

It’s also great swathes of business hurting, and hurting badly - seeing costs rising across the board, rents, stock, energy, wages, and with the customers, and the cash, not coming in the door on the other side.

I just don’t see this very uneasy limbo continuing for much longer. Everything points to the early-August meeting as absolutely pivotal.