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Financial Review

November emerges as rate-cut hope

Mortgage-holders and other borrowers can expect a rate cut by November after weaker-than-expected retail sales and slowing inflation signalled the economy is moving closer to stalling.

Investors' expectations shifted overnight, pricing in a cut in official interest rates in November to a certainty, from just a 1-in-4 chance of a reduction yesterday, according to Bloomberg data.

The main trigger was yesterday's slump in retail sales, which shrank 1% in June -- economists had tipped no change -- from a revised 0.9% in May.

The latest monthly inflation figures out today show a modest slowing in the pace of price increases, while manufacturing turned in its gloomiest result in more than two and a half years, reinforcing the view that the economy is cooling.

Prices rose 0.4% in July, easing from 0.5% in June, according to the TD Securities-Melbourne Institute inflation gauge.
At an annual pace, inflation is running at 4.6%, compared with 4.8% for the 12 months to June.

"The price of automotive fuel for the twelve months to July rose by approximately 30%, while the price of rental accommodation rose by over 15% during the same period," TD Securities' economist Joshua Williamson said in a statement.

"In total, automotive fuel and rental accommodation contributed approximately 2.0 percentage points to the yearly 4.6% increase."