Next week, the Reserve Bank of Australia (RBA) will announce its monetary policy decision. Analysts at Wells Fargo point out that due to clear signs of economic slowdown and indications of easing price pressures, they believe RBA policymakers will be comfortable maintaining the policy rate at 4.10%.
While RBA policymakers appeared concerned about the potential for services inflation to remain elevated, slower wage growth and the details of the July CPI figures offer some encouragement that underlying price pressures might be heading in the right direction.
Meanwhile, signs of a slowing in activity are more pronounced. Q2 real retail sales fell 0.5% quarter-over-quarter, marking a third straight quarterly decline. Employment dropped by 14,600 in July, and August PMIs staying in contraction territory points to subdued activity in both the manufacturing and services sectors.
The softening in China’s economy could also weigh on Australian growth, given extensive trade linkages between the two countries.