At first glance, it would seem that downside risks to activity and inflation are growing in Australia. The ABS' household spending indicator suggests that consumer spending slowed to a halt in Q1. Meanwhile, the ongoing slump in oil prices is likely to dampen price pressures in the months ahead. However, we would be wary of reading too much into these developments. The household spending indicator has not been a reliable guide to the national accounts measure of private consumption. And while the fall in oil prices will exert a significant drag on headline inflation, its impact on underlying inflation will be more muted. Accordingly, we still think the RBA won't cut rates as aggressively as most expect.
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