Good sign: Bullock speaks at a news conference in Sydney. Australia’s central bank has kept interest rates at a 12-year high this year but saw a gauge of monthly inflation cool in July, suggesting price pressures began to ease in the current quarter. — Bloomberg
SYDNEY: A gauge of Australian monthly inflation cooled in July, suggesting price pressures began to ease in the current quarter though not fast enough to warrant early interest rate cuts.
The consumer price index (CPI) climbed 3.5% from a year earlier, down from 3.8% and just above economists’ estimate of 3.4%, data from the Australian Bureau of Statistics showed yesterday.
The trimmed mean core measure, which smooths out volatile items, advanced 3.8% versus 4.1% a month earlier.
The currency edged up 0.2% while stocks extended losses following the release. Money markets are still pricing a first rate reduction in December.
The data came after the Reserve Bank of Australia’s (RBA) governor Michele Bullock earlier this month said she doesn’t expect rate cuts this year and indeed warned further policy tightening may still be needed.
The rate-setting board left the benchmark at a 12-year high of 4.35% three weeks ago, and said it remained vigilant to upside risks for inflation.
The RBA’s goal is to bring consumer prices back within its 2% to 3% target.
Energy subsidies from both national and state governments to households resulted in a 6.4% fall in July, the data showed.
“Excluding the rebates, electricity prices would have risen 0.9%,” Leigh Merrington, ABS acting head of prices statistics, said in a statement.
“The CPI data will likely feature heavily in the RBA’s deliberations at its Sept 24 meeting, along with upcoming second quarter gross domestic product numbers,” said economist James McIntyre.
“We expect the RBA to stay on hold and keep its tightening bias to ensure inflation expectations remain contained.”
The RBA’s hawkish message underlines its struggle to rein in inflation – the bank having nudged back its timing for the gauge to return to the target midpoint.
Australia’s position contrasts with counterparts from New Zealand to Canada and the United Kingdom that have already embarked on easing cycles.
The US Federal Reserve (Fed) is also laying the ground to begin cutting rates next month.
The central bank adopted a different strategy to peers to contain the post-pandemic inflation outbreak as it wanted to preserve employment gains at the same time.
Australia hiked at a slower pace than counterparts which resulted in its benchmark rate being about one percentage point lower than the Fed’s.
The central bank has held rates this year, while highlighting that aggregate demand still exceeds the economy’s supply capacity.
Bullock has expressed a willingness to be patient as she seeks to slow inflation without choking off economic growth.
The bank’s forecasts show core CPI only returning to the target band in late 2025.
Markets and economists expect the RBA will leave rates on hold again at next month’s meeting. — Bloomberg
