The inflation rate has fallen again. It is now at 2.1%, down from 2.4% last quarter. Inflation is now at the very bottom of the RBA’s target band of 2% to 3%.

The inflation rate is now at risk of falling outside the target band, but not because it’s too high, but because it’s too low.

This result shows the RBA made the wrong call earlier this month when it left interest rates on hold. The inflation rate has now been in the target band for a year. With the economy slowing and unemployment rising, now is the time to cut rates. The RBA’s failure to do this is becoming more and more obvious each day.

While the RBA’s targets the headline rate of inflation, which has fallen to 2.1%, it has increasingly been talking about the trimmed mean, or underlying rate of inflation. This is the inflation rate with the volatile bits stripped out. Because it has stripped out the volatile bits it tends to move more slowly than the headline rate. But it too has continued to fall. It has fallen every quarter for a year and now sits at 2.7%.

The RBA needs to admit that it’s continued concerns that low unemployment might lead to a wages breakout and higher inflation are a fantasy. Their outdated understanding of the economy needs to be thrown out. They should be taking an evidenced based view of what is actually happening. The evidence is clear. Interest rates need to be cut.