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Australia inflation ticks up in Q2, rate cut still in play

[SYDNEY] Australian consumer prices rose faster than expected in the second quarter but core inflation stayed below the central bank's target band, keeping alive expectations for a cut in a policy interest rate already at an all time low of 1 per cent.

The headline consumer price index (CPI) accelerated 0.6 per cent in the June quarter after flatlining in the previous three-month period. Economists surveyed by Reuters had forecast a 0.5 per cent rise.

Annual CPI inflation rose 1.6 per cent compared with expectations for a 1.5 per cent increase, the Australian Bureau of Statistics (ABS) data released on Wednesday showed.

The narrow beat sent the local dollar climbing 0.2 per cent to a day's high of US$0.6876.

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Financial markets pared expectations for an August rate cut to under 10 per cent now from 25 per cent before the data.

The Reserve Bank of Australia (RBA) has chopped interest rates by 50 basis points since June to an all-time low of 1 per cent in an effort to revive growth and inflation.

Futures are still pricing in a 25-basis-point cut to 0.75 per cent in November as closely watched measures of underlying inflation undershot the central bank's target for a 14th straight quarter, the longest stretch since the series began.

One of the RBA-favoured measures of inflation - trimmed mean - rose 0.4 per cent in the second quarter from 0.3 per cent in the prior quarter, matching expectations. On an annual basis, it held at 1.6 per cent against the RBA's long-term target band of 2 per cent to 3 per cent.

The two key measures of underlying inflation - trimmed mean and weighted median - averaged around 1.4 per cent for the year.

The tepid outcome underlines the challenges facing the RBA in reviving inflation.

The biggest price increases in the quarter came from fuel, medical and hospital services and international holiday and accommodation while prices for fruit and vegetables, domestic travel and electricity all fell. 

REUTERS