Interview: Australian Inflation lower than expected

The Australian Bureau of Statistics have released the fourth quarter results of the country's inflation rate Wednesday, with the subdued percentage lower than expected for the Reserve Bank of Australia.

Economists had predicted the consumer price index to rise at 0.7 percent last quarter, however Wednesday's announcement of 0.5 percent reinforced what some experts feared.

"The message is that inflation remains weaker and that is generally a sign the overall economy is not performing as well as it should," Capital Economics' chief economist Paul Dales told Xinhua.

"The Australian economy has grown at a rate below its potential of about 1.275 percent for six out of the past eight years, which means there is more people willing to work than there are jobs, it means businesses aren't using all their computers, or perhaps manufacturers aren't using all the machines they own."

"Wage growth of households is also at a record low of 1.9 percent, meaning businesses can't raise their prices because they know no one will be able to afford it, it's a situation where the weakness of the economy leads to weak inflation."

This poses a "major headache" for the Reserve bank of Australia, IG chief market strategist Chris Weston told Xinhua.

"Core inflation and headline inflation are both well below where the RBA would like them to be, and they've had low interest rates for a long time now which has created diminishing returns for them."

The Reserve Bank of Australia already has interest rates at 1.5 percent, creating a conundrum as to what course of action the central bankers can take to spark inflation growth.

"Cutting the cash rate is unlikely to drive inflation any higher than it is at the moment and all it would do it spur on more housing buying at a time when housing is at very unaffordable levels. So there is not a lot the RBA can do," Weston said. Enditem.