Australia’s Q3 inflation slows to 3-1/2 year low, core remains sticky
AUSTRALIAN consumer price inflation slowed to a 3-1/2 year low in the third quarter thanks to government rebates on electricity and a drop in petrol, while the core measure was still sticky due to elevated services price pressures.
Overall, the report was rather mixed, leaving the Australian dollar little changed at US$0.6558. Three-year bond futures were flat at 96.07, and swaps continued to imply little chance of a rate cut by the year end at just 26 per cent.
Data from the Australian Bureau of Statistics on Wednesday showed the consumer price index (CPI) rose 0.2 per cent in the third quarter, under forecasts of a 0.3 per cent increase.
Annual inflation dropped to 2.8 per cent, from 3.8 per cent, taking it back into the Reserve Bank of Australia’s (RBA) 2-3 per cent target band for the first time since late 2021.
That was driven by a 17.3 per cent drop in electricity prices due to the government’s subsidies, while petrol fell 6.2 per cent in the quarter.
For September alone, CPI rose a muted 2.1 per cent compared with a year earlier, the lowest since July 2021.
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Policymakers are more focused on core inflation and the trimmed mean measure increased by 0.8 per cent in the quarter, just above forecasts of a 0.7 per cent gain. The annual pace though slowed to 3.5 per cent from 4.0 per cent.
The RBA has held its policy steady since November, judging the current cash rate of 4.35 per cent - up from 0.1 per cent during the pandemic - is restrictive enough to bring inflation to its target band of 2-3 per cent while preserving employment gains.
The labour market has stayed surprisingly resilient, an argument against early rate cuts. But the easing in annual core inflation comes ahead of the RBA’s projection for it to slow to 3.5 per cent by the end of the year.
Services inflation remains a source of concern for the RBA, staying elevated at 4.6 per cent in the third quarter, slightly higher than the June quarter’s 4.5 per cent, and little changed over the past 12 months.
The central bank will have an updated set of economic forecasts when it decides on its next move on Tuesday. REUTERS
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