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The Bureau of Statistics released Q4 CPI data today, with a -0.3% quarter-over-quarter level that confirms the trend indicated by last month’s Melbourne Institute Inflation Gauge data. This confirmation sets the stage for Governor Stevens to cut rates sharply when the Reserve Bank’s board meets next Tuesday.

Australia is now showing clear signs that it is slipping into its first recession in two decades, after the economy grew 0.1% in Q3. Currently the mood down under is growing increasingly grim with consumer confidence declines in January and a business sentiment index level for December that marked the twelfth consecutive decline. A two-year high unemployment rate of 4.5% is expected to increase over the next two quarters.

Currently median forecast come in at a cut of 100 basis points, taking the benchmark rate down to 3.25% while leaving Stevens with several bullets left to use. We continue to think that Stevens and his team are doing an admirable job –but the external issues faced by the Australian economy cannot be overcome by deft policy alone.

Matthew Hedrick

Andrew Barber