Australia’s core inflation unexpectedly decelerated last quarter, supporting the Reserve Bank’s view that prices will gradually ease and prompting traders to boost bets on an interest-rate cut. The currency and bond yields dropped.
The closely-watched trimmed mean core measure, which smooths out volatile items, climbed 3.9% in the second quarter from 4% three months earlier, data from the Australian Bureau of Statistics showed Wednesday. The consumer price index advanced 3.8% in the three months through June from a year earlier, matching estimates.
The currency fell as much as 0.8% and yields on policy sensitive three-year government bonds declined 21 basis points, while stocks surged. Traders scrapped bets on a rate hike at the RBA’s meeting next week and are now pricing a 50% chance of a cut in December.
The inflation report is likely to boost confidence among RBA policymakers that they can remain on a “narrow path” of cooling prices while preserving job gains, bringing the economy in for a soft landing.
The RBA has raised rates by less than global counterparts as it worried about the capacity of heavily-indebted households to meet significantly higher mortgage repayments. The cooling in prices suggests the central bank is on track to meet its goal of returning price gains to the 2%-3% target late next year without requiring further tightening.
The RBA meets to discuss monetary policy on Aug. 5-6 and will also publish updated economic forecasts with its decision on Tuesday. The CPI data follows stronger-than-forecast jobs growth and healthy retail sales, while measures in business surveys remain resilient.
The strength in recent economic and partial price data had raised questions over whether policy is sufficiently restrictive. Just last month, Governor Michele Bullock reiterated the rate-setting board isn’t ruling anything in or out after leaving the benchmark at a 12-year high of 4.35%.
Source : Bloomberg
