The RBA has expected consumer price inflation would peak at about 8% this quarter, but now that might be too pessimistic. — Bloomberg
SYDNEY: Australian inflation slowed in October as prices for fruit and vegetables fell sharply and holidays costs took a surprise dip, an unexpected turn that could mean interest rates will not have to rise as far as some expected.
Data from the Australian Bureau of Statistics yesterday showed its monthly consumer price index had risen 6.9% in the year to October, slowing from 7.3% in September.
That was shock to analysts, who had looked for a rise to 7.4% or higher in October, and was a possible hint that inflation might be peaking.
Indeed, a closely watched measure of core inflation, the trimmed mean, rose a relatively muted 0.3% in October from the previous month, the smallest increase since November last year.
Annual growth in the trimmed mean slowed to 5.3% in October, from 5.4%, again a surprise to analysts, who had looked for an increase to around 5.7%.
This would be a pleasant surprise for the Reserve Bank of Australia (RBA), which has had to lift interest rates by 275 basis points to a nine-year high of 2.85% in an effort to contain inflation.
The RBA has expected consumer price inflation would peak at about 8% this quarter, but now that might be too pessimistic.
Markets are still wagering the RBA will raise its cash rate by another 25 basis points at its December policy meeting next week.
Yet they also trimmed the expected peak for interest rates to 3.65%, from 3.72% before the CPI release and as much as 4.20% last month.
Three-year bond futures climbed five ticks to 96.80 and interbank futures edged higher as investors lowered the likely top for rates.
Yesterday’s data showed inflation in October had been dragged down by a 6.3% drop in fruit and vegetable prices from September as growing conditions improved, though recent flooding could see prices climb again towards the end of the year. — Reuters
