Media365
Australia’s inflation slowed slightly in the June quarter, with underlying price pressures coming in below market expectations, reducing the likelihood of another interest rate hike by the country’s central bank in the near term.
Data released by the Australian Bureau of Statistics on Wednesday showed consumer prices rose 0.6 per cent in the June quarter, slowing from a 1.4 per cent increase in the previous quarter. On an annual basis, inflation eased to 4.0 per cent from 4.1 per cent.
The closely watched trimmed mean inflation measure, which strips out volatile price movements and is used by the Reserve Bank of Australia (RBA) to gauge underlying inflation, rose 0.8 per cent during the quarter. That was slightly below economists’ expectations of a 0.9 per cent increase.
Annual core inflation edged up to 3.6 per cent from 3.5 per cent, but remained below market forecasts of 3.7 per cent and the RBA’s own projection of 3.8 per cent.
The softer-than-expected inflation figures prompted investors to scale back expectations of another interest rate increase. Financial markets now see only a 4 per cent chance of a rate hike next month, down sharply from around 21 per cent before the data was released. The probability of another increase later this year also eased to around 40 per cent.
The Australian dollar weakened 0.4 per cent to around $0.6949 following the data, while yields on three-year government bonds fell 10 basis points to 4.479 per cent, reflecting expectations that borrowing costs may remain unchanged for now.
Separate monthly data showed consumer prices fell 0.1 per cent in June, bringing annual inflation down to 3.8 per cent.
However, economists cautioned that the inflation outlook remains uncertain after global oil prices surged roughly 20 per cent this month amid renewed military attacks involving the United States and Iran in the Gulf. Higher energy prices could feed into consumer inflation in the coming months.
The Reserve Bank of Australia has already raised its benchmark cash rate three times this year to 4.35 per cent, reversing the policy easing introduced last year as it seeks to bring inflation back within its target range.
RBA Governor Michele Bullock said on Tuesday it was still unclear whether the tightening undertaken so far would be sufficient to return inflation to target, leaving the door open for further policy action if price pressures persist.
The central bank’s decision will also be influenced by labour market conditions, which have remained resilient. Australia added more jobs than expected in June, even as the unemployment rate edged slightly higher, suggesting the economy continues to withstand higher borrowing costs.
