Australia’s inflation slows, adds to rate pause case

Break time: Pedestrians walk past the Reserve Bank of Australia building in Sydney. Many analysts think the central bank will hike at least once more, some believe it might pause in April before moving in May following inflation data for the first quarter. — Reuters

SYDNEY: Australian inflation slows to an eight-month low, thanks in part to a sharp retreat in holiday travel and accommodation, adding to the case for a pause in interest rate hikes next month.

Data released by the Australian Bureau of Statistics yesterday showed its monthly consumer price index (CPI) rose 6.8% in the year to February, the slowest since June last year.

That compared with 7.4% the previous month and market forecasts of 7.1%.

The monthly CPI index rose 0.2% in February, from January. Prices excluding volatile fruit, vegetables and fuel rose 6.9% in the year to February, down from 7.5% in January.

Investors reacted by pushing the local dollar 0.2% lower to US$0.6694 (RM1.96), while further trimming bets on a 25-basis-point hike at April’s policy meeting to just 5%, compared with 15% before.

“The further sharp fall in inflation coupled with the softness of consumption will probably prompt the Reserve Bank of Australia (RBA) to pause its tightening cycle next week,” said Marcel Thieliant, a senior economist at Capital Economics.

Yesterday’s data showed that inflation in February had been dragged down by a 14.6% drop in the costs of holidays and travel on a monthly basis.

That added to the evidence that inflation has likely peaked in the country, a pleasant outcome for the central bank, which has lifted interest rates by 350 basis points to an 11-year high of 3.6% in an effort to contain inflation.

Recent data releases have been a mixed bag. Australian employment rebounded strongly in February, the jobless rate eased back to near 50-year lows, and business conditions remained resilient, although consumer spending has levelled off.

The recent turmoil in the global banking system, which threatens to sharply tighten financial conditions, has led investors to all but price out any chance of further hikes in the cash rate and even forecast a chance of a cut later in the year.

While many analysts still think the RBA will hike at least once more, some believe it might pause in April before moving in May following inflation data for the first quarter. — Reuters

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Australia , inflation , CPI , RBA , rates , bankingsystem


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