Australian consumer prices and inflation data for the first quarter
Shoppers are seen in the overpass separating the David Jones and Westfield men’s store during Boxing Day sales on December 26, 2019 in Sydney, Australia.
Jenny Evans | Getty Images News | Getty Images
Australian consumer prices rose much less than expected in the last quarter, while core inflation rose at the lowest rate on record, indicating that monetary policy could remain very loose for a long time.
The Consumer Price Index rose 0.6% in the March quarter compared to the previous three-month period, beating market expectations for an increase of 0.9%.
The annual pace accelerated to 1.1%, from 0.9%, but again missed the forecast of 1.4% and remained well below the Reserve Bank of Australia’s target range ( RBA) from 2% to 3%.
A key measure of reduced average inflation rose a surprisingly low 0.3% in the quarter, while the annual pace, at 1.1%, was the lowest on record.
“The weakness of core inflation is consistent with our view that the RBA will soon announce a third round of asset purchases of A $ 100 billion,” said Marcel Thieliant, economist at Capital Economics. .
It “also suggests that financial markets have gone too far in pricing in nearly three rate hikes by the end of 2023,” Thieliant added.
In response, the Aussie fell to a one-day low of $ 0.7726 to be the last at $ 0.7735 as investors reduced the likelihood of a policy tightening.
To help ease the economic shock caused by the coronavirus pandemic, the RBA last year cut interest rates to an all-time high of 0.1% and announced a yield curve control policy targeting three-year government bonds. Later in 2020, he announced a separate round of A $ 100 government bond purchase program and extended the plan for an additional A $ 100 billion this year.
The RBA reiterated that rates will stay at 0.1% until real inflation rebounds within its 2% to 3% range, a target that has remained elusive for the past five years.
The RBA’s own projections show inflation to exceed its target until at least mid-2023.
Grants and Programs
The ABS said inflation for the March quarter was low due to the “introduction, continuation and conclusion” of a number of government programs and subsidies, leading to lower prices for new homes and of higher education.
Higher prices for tobacco and furniture were partially offset by lower rents, motor fuel and utilities.
Non-tradable inflation, a useful indicator of domestic price pressures, rose only 0.2% in the March quarter and 1.3% on an annual basis, the data showed.
“There is, quite simply, little domestic inflationary pressure,” noted Callam Pickering, APAC economist at Global Job Site Indeed.