Inflation undershoots in Australia

Dr Shane Oliver, AMP Capital.

Surprisingly weak Australian inflation has led to expectations the Reserve Bank will soon cut rates. But what’s driving low inflation? Is it really that bad? Why not just lower the inflation target? Will rate cuts help?And what does it mean for investors?

 The key points are as follows:

  1. Surprisingly low inflation in Australia has increased the pressure on the RBA to cut interest rates again.

  2. We continue to see the cash rate falling to 1% by year end and now see the first cut coming as soon as May.

  3. For investors, it’s going to remain a low interest rate environment for some time to come.

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