No wonder the Reserve Bank of Australia appears so comfortable with the inflation outlook.
When retail sales fail to grow in a quarter, and edge just 1.1 per cent higher in the course of a year, that tells you everything you need to know about the extent of consumer caution and a lack of pricing power among retailers.
For a central bank contemplating a cash rate cut to 2.5 per cent, the environment doesn’t get much more unthreatening than this.
And the RBA Board, when it meets tomorrow, will have to taker into account the market’s emphatic expectation that monetary policy will be eased.
But this rate cut will not be the political tonic that governments usually get from moves that make borrowing cheaper – this time around it is a potent sign of how soft conditions in the economy have become – and how much more work the RBA may yet have to do.
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