Australian inflation gives RBA room to keep rates low
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Australian inflation gives RBA room to keep rates low

Last Updated: Wednesday, July 23, 2014, 12:19
 
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Australian inflation gives RBA room to keep rates low
Sydney: Australian inflation came in at 0.5 percent in the three months to June, official figures showed Wednesday, giving the country`s central bank room to keep interest rates at a record-low to support the economy.

The consumer price index (CPI) had lifted 0.6 percent in the previous quarter, the Australian Bureau of Statistics (ABS) said.

The latest figures took the annual rate of inflation to 3.0 percent, up from 2.9 percent in the year to March, but within the Reserve Bank of Australia`s target range of 2.0-3.0 percent.

The Australian dollar, which was trading at 93.93 US cents on Tuesday, slipped briefly before surging to 94.35 US cents.

The ABS data was in line with market expectations of an increase of 0.5 percent quarter-on-quarter and 3.0 percent over the year.

"We view today`s outcome, and the inflation outlook more broadly, as neutral for monetary policy," ANZ`s senior economist Riki Polygenis said.

"It does not appear weak enough to justify a rate cut. Equally, it implies little urgency for the RBA to wind back very expansionary monetary policy."

The inflation levels were driven by a rise in health insurance, cigarette prices, new housing, furniture and international travel.

Moving in the opposition direction were petrol prices, domestic travel and telecommunication equipment and services costs.

Underlying or core inflation, which strips out volatile items and is more closely watched by the Reserve Bank, rose 0.7 percent for a year-on-year rate of 2.8 percent.

Barclays` chief economist for Australia Kieran Davies said the figures were broadly similar to the RBA`s forecasts and its focus now turns to June retail sales numbers, which come out next month.

"The retail sales number will be important because we`ve had weakness there recently and we had that big drop in consumer confidence from the budget, although the weekly consumer confidence numbers have shown a rebound," Davies told AFP.

Analysts had cautioned that the tough May federal budget, which cut back on government welfare and spending, could lead to consumers tightening their purse strings.

Davies said the RBA has also been frustrated by the recent strength of the Australian dollar, which the central bank said weighs on economic growth.

The central bank has left the cash rate on hold at 2.5 percent since cutting it by 25 basis points in August as the economy transits away from an unprecedented boom in the mining sector.

It has sought to boost growth in non-resources industries to help fill the gap expected to be left by a fall off in mining investment later this year.

RBA governor Glenn Stevens said in a speech Tuesday he was "content right now" with Australia`s monetary policy settings.

Market expectations of a rise in interest rates in 2014 increased after the release of ABS figures showing a surprise jump in last year`s fourth-quarter inflation.

But the pressure on the central bank to raise rates to keep inflation in check eased after softer CPI numbers in the first-quarter of 2014.



AFP

First Published: Wednesday, July 23, 2014, 12:19


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