Slowing inflation in the USA gives cause for the RBA to pause rate raises

by Greg Jericho

As price growth begin to slow around the world, the RBA needs to stop slamming on the brakes

The most recent inflation data from the USA suggests the surge in prices over the past year has very much abated.

In the 12 months to December, inflation in the USA rose 6.5% down from 7.1% in the 12 months to November and well below the peak annual growth of 9.1% in June last year.

This is important for Australia because our inflation growth moves very much in line with that of the USA. And given the strong impact of tradable items on Australia’s inflation the fact that price growth is slowing in the world’s largest economy – especially due to falling oil prices – is a sign that inflation here will likely peak lower than previously feared.

The November CPI figures showed annual price growth of 7.3% here in Australia. And while that was above the 6.9% growth in October, the signs since July suggest a definite flattening of growth rather than the strong acceleration that began at the end of 2021.

These figures suggest that the Reserve Bank should pause raising rates in February and wait for more data that takes into account the impact of the November and December rate rises. With expectations of a weakening economy both here and abroad, the RBA needs to ensure it does not continue to slam on the brakes when the economy has already slowed.

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