SYDNEY (Reuters) -Australia's top central banker said on Monday a rise in core inflation of 0.9% in the third quarter would be a "material miss" to forecasts that would have to be weighed by the board
when judging whether to cut interest rates next week.
Speaking at an economics dinner, Reserve Bank of Australia Governor Michele Bullock was asked about consumer price data due on Wednesday where market economists are looking for a rise of 0.8% in the quarter, while the central bank had been forecasting something nearer 0.6%.
The comments backed up analysts' assumptions that an increase of 0.9% or more could lean heavily against a cut in rates at the RBA's next board meeting on November 4, while a rise of 0.8% would likely make it a line ball call.
Markets imply around a 60% chance of a quarter-point cut in the 3.60% cash rate next week, and around a 70% probability that rates will eventually bottom out at 3.10%.
The central bank has repeatedly cautioned that core inflation for home building and services was proving more sticky than expected and it needed to be certain that inflation was slowing as hoped before deciding whether to ease again.
Recent data showing unemployment unexpectedly spiked to a four-year high of 4.5% in September had seen markets ramp up wagers for a November rate cut.
However, Bullock said the data were volatile from month to month and the rise was not a "huge amount" above the central bank's forecasts of 4.25%.
Forward indicators of labour demand were also resilient and there was no sign the labour market was about to "fall of a cliff", she said.
Still, she added if the board proved to be wrong on the stability of the jobs market, they should be prepared to change their minds and move on policy.
(Reporting by Wayne Cole; Editing by Kirsten Donovan, William Maclean)
