Australian Inflation Below Forecasts, Rate Cut Eyed
Australian inflation came in short of expectations for a third consecutive quarter on Wednesday, boosting the case for an August interest rate cut as mining investment peaks.
The Australian Bureau of Statistics (ABS) said consumer prices rose 0.4 percent in April-June compared with the previous quarter, while they were up 2.4 percent year on year as the economy transitions away from a decade-long commodities spending boom.
Analysts had expected rises of 0.5 percent on-quarter and 2.5 percent on-year. The muted data was seen as supporting the case for an interest rate cut next month from the current record low of 2.75 percent.
Underlying inflation, which strips out volatility caused by events such as extreme weather, was slightly higher at 0.6 percent. The Australian dollar edged up to 93.13 U.S. cents from 92.80 cents before the data's release.
Falls in the price of domestic holiday travel and accommodation and petrol were offset by rises in medical and hospital costs, tobacco prices, furniture and home purchases, the ABS said.
Stripping out the effects of Australia's corporate pollution tax, which Canberra recently announced would be scrapped in favor of an emissions trading scheme, economist Stephen Koukoulas said inflation was likely to be 1.5 percent on-year next quarter, a very weak result.
Koukoulas, who works for Market Economics, added that price rises were "too low" and a central bank rate cut next month was "as close to a done deal as one can be".
Shane Oliver, from AMP Capital, said the data pointed to a "lack of pricing power in the economy".
"The bottom line is that inflation is comfortably contained in the RBA's 2.0-3.0 percent target range and we view the benign outcome as clearing the way for the RBA to cut interest rates again next month," he said.
The Reserve Bank of Australia left the door open for further cuts this month, saying the inflation outlook could provide some scope for more easing as the China-led mining investment boom unwinds.
It expects inflation of 2.25 percent for the year ending December 31, in line with government forecasts.
Treasurer Chris Bowen recently described the transition away from resources as a challenge, not a crisis, for the economy, which expanded a slower-than-expected 2.5 percent on-year in the first three months of 2013.
Bowen said Wednesday's data was welcome news leading up to Australia's national elections, due by the end of November, where cost of living is expected to feature as an issue.
"The Labor government is committed to easing cost of living pressures for Australian families as the economy transitions away from the mining investment boom," Bowen said.
"As we transition away from the mining investment boom, we have solid growth, contained inflation, record low interest rates, low unemployment and strong public finances as demonstrated by our AAA credit rating."
Source: Agence France Presse
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