Following yesterday’s release of the December quarter Consumer Price Index, if the Reserve Bank of Australia doesn’t cut the cash rate and begin the rate cut cycle at its mid-February board meeting, then they’ll be making a big mistake. While I’d like to say a cut is a certainty, (and it should be), our central bank has a history of cutting and even raising rates too slow!

In 2023, former PM and Treasurer, Paul Keating told the ABC that the RBA was “fallible” and the government’s power to overrule the bank shouldn’t be given up. “The RBA has always suffered from institutional inertia,” Keating told the ABC. And in a more insulting mood in 2020, when Covid was threatening a serious recession, he said: “When a real crisis is upon us, the RBA is invariably late to the party. And so it is again.”

Yesterday’s inflation numbers should tell any streetwise economist that it’s time for a rate cut. In fact, the economics team at the CBA thinks we should see one 0.25% cut per quarter of 2025 and one in 2026, which adds up to five. I hope they’re on the money.

Here are 10 reasons why the RBA should cut:

1. The headline CPI for the three months to the end of December was a weak 0.2%, while economists expected a 0.3% rise.
2. When I annualise that 0.2% by multiplying it by 4, I get 0.8%, which screams low inflation!
3. It was the equal slowest quarterly pace of growth since the June quarter of 2020 – when prices slumped at the height of Covid-19.
4. Annual headline inflation eased to a near four-year low of 2.4% in the December quarter, down from 2.8% in the prior quarter, and a peak of 7.8% in late 2022.
5. The RBA looks more closely at the core or underlying inflation, with the trimmed mean CPI measure increasing by 0.5% in the fourth quarter. The CBA team says this is “the smallest increase since the March quarter 2021 - and below market forecasts of 0.6%”.
6. Annualise that number and I get 0.5 x 4 = 2%, which is a strong reason to suspect inflation is heading down. And because it’s now February, the fall could be greater!
7. The big problem has been services inflation. That rose by 0.7%. Even if you annualise this, you get 2.8%, which is inside the RBA’s target band of 2-3%.
8. Core services inflation rose 0.3% in the quarter – the smallest increase since 2021, in a sign that services disinflation is broadening-out. Annualised, that would be a low 1.2%!
9. Goods prices fell 0.1% in the December quarter and eased to a 0.8% annual pace and was the lowest since mid-2016.
10. Futures market players now think there’s a 90% chance of a February rate cut on February 18.

With the numbers above and given that the last economic growth rate we saw was a shockingly low 0.8% for the year, (that saw the ABS report it was “...the lowest rate since the COVID-19 affected December quarter 2020), there are few reasons to hold back on a rate cut.

Only a bunch of nervous Nellie public servants or a team of nincompoops would hold back on a cut, especially when they know the economy’s growth has been driven by one of the biggest surges in government spending in recent years.

The private sector of the Australian economy needs a rate cut, and fast, from a rational and early to the party RBA.