Price war 'could influence Reserve Bank'

An ongoing grocery price war between Woolworths and Coles could influence some of the decisions made by the Reserve Bank of Australia (RBA), it has been claimed.

Chief economist at Commsec Craig James said that the constant price cuts issued by the two major retailers would force the RBA to keep inflation figures low, which will ultimately benefit people who have taken out home loans, the Courier-Mail reports.

He stated that evidence of low food prices forcing inflation down was seen in the year-long "milk war" of 2011.

"Retailers have been keeping prices low because consumers aren't spending and this means the Reserve Bank is more likely to cut interest rates," Mr James was quoted as saying.

It is widely expected that the RBA will sanction a cut to interest rates when the board meet for the first time in 2012 this month.

The bank already trimmed rates by 0.25 per cent in both November and December, but many economists feel that further action is required in order to boost the economy.

Get more information on the latest Reserve Bank interest rates with Mozo. ADNFCR-1761-ID-801280773-ADNFCR