Worrying fall in underlying inflation

The further fall in underlying inflation in Australia in the third quarter could be the start of a period of persistently low inflation that plays a role in prompting the Reserve Bank of Australia to cut interest rates to 1.5% next year. Inflation on the weighted median measure of CPI fell from 2.4% to 2.2% in the third quarter and the six-month annualised rate, which is a more timely measure, fell to 1.6%. The influence of the slowdown in GDP growth already seen will probably be enough to drag underlying inflation below the RBA’s 2-3% target range.