Consumer inflation will be the most important economic data release of the week. Most economists expect the headline figure to have dipped just below the midpoint of the Reserve Bank’s inflation target range, but a surprise drop cannot be ruled out.
A large undershoot in the CPI would signal that demand in the economy is even weaker than previously thought. This would strengthen the odds of another interest rate cut when the Bank meets in September, though markets are not expecting it to move again until early 2020.Capital Economics senior emerging markets economist John Ashbourne thinks a combination of political shocks, a wide current account deficit and an increasingly difficult global backdrop will continue to weigh on the currency.
This added an estimated 0.2 percentage points to headline inflation in July, but this was more than offset by a sharp 5.7% year-on-year fall in fuel prices during the month, according to Ashbourne. “However, these base effects will wear out in the first quarter of 2020 and we could see headline CPI inflation rise to about 5.5% by that time,” he warns.Investec economist Kamilla Kaplan expects consumer inflation to average 4.6% year on year in 2019.
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Waning inflation is a sign of an economy under pressureLarge drop would strengthen the odds of another interest rate cut when the Bank meets in September
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