ANZ's economists put a more dovish view based on spare capacity (or the "output gap"), which is a critical issue. Indeed, the key underlying question for the RBA is this: has inflation troughed above its target range, or is there further deceleration to come. ANZ opts for the latter:
"The outlook for the Australian economy remains for solid, but below trend economic growth over the coming year. Measures of capacity utilisation and the output gap suggest that there will be ample spare capacity over the next 12 months. As such, building inflationary pressures stemming from capacity constraints look to be more of a 2011/2012 story, with underlying inflation to ease back in coming quarters before rising back above 3% by late 2011.
Under these circumstances, we believe there is little urgency for the RBA to hike rates in the next few months, even if upcoming Q2 inflation figures surprise to the upside. As our Data Preview on page 5 explores, our central case forecast is for headline Q2 inflation of 0.8% QoQ and 3.3% YoY and for underlying inflation of 0.7% QoQ and 2.8% YoY."
