Although the analyst consensus expects the RBA to cut rates only in September, we're sticking with our view that the RBA will loosen policy as early as May. For one thing, the household cash flow channel of monetary policy is stronger in Australia than elsewhere. Therefore, although the RBA hasn't tightened as aggressively as some of its counterparts, rate hikes are already strongly impinging on domestic demand. For another, services account for a comparatively small share of Australia's CPI. And with new PMI data pointing to a plunge in goods inflation, we suspect CPI inflation will approach the RBA's 2-3% target sooner than most anticipate.
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