In simple terms, the economy has weakened across this broad range of vitally important indicators with most of the weakening largely unexpected. Had the RBA been reacting to this new news, it would have already cut rates by 25 or even 50 basis points.
To be sure, there has been a little positive news. The RBA index of commodity prices has risen 30 per cent over the last 8 months and business expectations are firm. That said, coal and iron ore prices are off their recent highs.
What’s more, in terms of housing there is clearly a glut of property forming in most cities which sensible analysts suspect with slow the growth in prices and add to the risks in the economy.
What’s more, the banks have been lifting interest rates during this fragile economic climate. The rising cost of funds has been mortgage and business interest rates rise which will, at the margin, act to cool already soft spending and investment.
The economy is not registering sufficient growth to see inflation lift appreciably over the short and medium term. As such, it still seems more likely than not that once the RBA gets its head out of the sand and into the data bases on the economy, it will trim interest rates again.
Two 25 basis point cuts over the next 12 months seems a minimum requirement, with the unemployment rate currently too high and inflation too low.