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UOW expert commentary: Dr Paul Mazzola on interest rates

UOW expert commentary: Dr Paul Mazzola on interest rates

UOW expert says there's danger in the numbers

Dr Paul Mazzola says tomorrow’s cash rate announcement is particularly important in the Reserve Bank of Australia’s (RBA) attempt to put the inflation genie back in its bottle.

“The annualised inflation rate to 31 March 2024 has declined from 4.1 per cent to 3.6 per cent. This marks the fifth consecutive quarter of lower annual inflation since the peak of 7.8 per cent in the Dec 2022 quarter,” Dr Mazzola said.

The banking expert says although this trend is welcome, economists are concerned it is not enough.

“Spending has reduced but is sticky, with some items in the CPI basket moving backwards. We’re at a delicate stage in the process. If we get it wrong, we could either unleash unreasonable inflationary expectations leading to an inflation spiral, or trigger a recession,” Dr Mazzola said.

“It’s not an enviable position for the RBA board. The trick is in analysing the data in detail and understanding the limitations of monetary policy.”

Dr Mazzola says the latest data shows that the principal driver behind the March quarter inflation rate is services inflation, not goods inflation. These include rents, secondary education, tertiary education and media and hospital services.

“It is arguable whether an increase in the cash rate would impact greatly on most of these necessary and inelastic expense items,” Dr Mazzola said.

 is a Lecturer in banking and finance in the School of Business. He has more than 25 years’ banking and finance experience in the Australian, European and Asian Pacific markets. He is the author of .


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