Two economies with much in common, Australia and Canada have nonetheless strode very different paths in the fight against inflation.
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The Bank of Canada on Wednesday cut the official cash rate to 4.5 per cent, after becoming the first Group of Seven economy to begin monetary easing in June.
Annual inflation in the Commonwealth nation is now comfortably back within target at 2.7 per cent.
Yet price growth remains far from under control in Australia, which like Canada is a vast and sparsely inhabited English-speaking nation with a similarly sized commodities-heavy economy.
While the rest of the world contemplates rate cuts, the Reserve Bank of Australia's earlier dovishness affords it no such luxury.
An important few weeks for the Australian economy begin with June quarter inflation data on Wednesday.
Analysts say there is more chance of a rate rise than a cut at the RBA's next meeting in August, though most think it likely to remain unchanged.
The latest monthly inflation readout showed prices grew at four per cent over the previous year, well above the central bank's two-to-three per cent target range.
Australia's central bank lags its Canadian counterpart so conspicuously because it took a much slower and softer approach to tackling inflation, NAB senior economist Taylor Nugent says.
"The BoC was more assertive earlier in the hiking process," he told AAP.
"They took rates deeper into restrictive territory, they saw a more material pullback in demand and a more material weakening in the labour market, and as a result they're now in a position to cut sooner and faster than the RBA."
With inflation under control, the Bank of Canada is now more concerned about downside risks - overshooting its target and driving the economy into negative growth.
Despite higher inflation, Australia's official cash rate remains below Canada's at 4.35 per cent.
The RBA has clearly chosen to have a higher tolerance for above-target inflation to keep more Australians in employment, Mr Nugent said.
"We have seen a lot more resilience in the Australian labour market than Canada has, but by the same token, we've also seen less progress on the fight against inflation," he said.
While the RBA has still not won its battle against inflation, it must also be mindful of not overcorrecting and sending Australia's economy into recession.
The next few weeks mark a fork in the road for Australian policymakers, Deloitte Access Economics partners Stephen Smith and Cathryn Lee say in the firm's quarterly business outlook.
"Any further increase in interest rates cannot be justified, and would just pull the rug out from under a cautious economic recovery," Mr Smith said.
The pair argue Australia's low unemployment rate was not as reliable an indicator of a strong economy as it seemed, because robust jobs figures were largely due to growth in non-market sectors such as health and disability services.
Mr Smith pointed to sluggish GDP growth as further proof the economy was not overheating, predicting the economy to grow by one per cent in 2024.
Inflation would not be curtailed by a further rise in interest rates, which worked by slowing excess demand, he said.
He argued supply-side factors were contributing to inflation, such as a housing shortage pushing up rents.
Labor MP and economist Andrew Charlton said the government's fiscal restraint had helped fight inflation without tipping the economy into recession, but acknowledged Australians were being hit hard by elevated interest rates.
"Consumer confidence is moving down, consumer spending has been falling and right across the board Australians are struggling to meet this cost-of-living crisis," he told Sky News.
Australian Associated Press
