May is here, and as the weather begins to cool the political climate is heating up. The federal election on May 18 bookends a busy period on the national political and economic front which began with the Budget on April 2.
Australian financial markets were surprised by an unexpected fall in inflation. The Consumer Price Index, Australia’s main inflation measure, fell from an annual rate of 1.8 per cent to a record low of 1.3 per cent in the March quarter. This is well below the Reserve Bank’s 2-3% target and leaves the door open to a cut in official interest rates to stimulate economic growth. The cash rate has been unchanged at a record low of 1.5 per cent since August 2016. Australia’s 10-year bond rate is at 10-year lows of 1.78 per cent, indicating the market expects slower economic growth.
The Australian dollar fell half a cent on the inflation news and speculation about a rate cut, finishing the month at around 70.5 US cents. But Australian shares jumped to an 11-year high in line with Wall Street where shares hit a record high in response to better-than-expected company profit reports. The news from China was also positive, with economic growth steady at 6.4 per cent in the year to March.
The good news is that inflation is now well below average wages growth of 2.3 per cent per cent. Australian consumers remain positive on the back of lower prices and a strong jobs market. Unemployment held steady at 5 per cent in March, near decade lows, while the ANZ-Roy Morgan consumer confidence index rose to a four-month high in April, before dipping slightly in the final week.
Read more from our May 2019 update here:
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