SYDNEY (Reuters) – Australian consumer price inflation slowed to a 3-1/2 year low in the third quarter thanks to government rebates on electricity and a drop in petrol, while the core measure was still sticky due to elevated services price pressures.
Overall, the report was rather mixed, leaving the Australian dollar little changed at $0.6558. Three-year bond futures were flat at 96.07, and swaps continued to imply little chance of a rate cut by the year end at just 26%.
Data from the Australian Bureau of Statistics on Wednesday showed the consumer price index (CPI) rose 0.2% in the third quarter, under forecasts of a 0.3% increase.
Annual inflation dropped to 2.8%, from 3.8%, taking it back into the Reserve Bank of Australia’s (RBA) 2-3% target band for the first time since late 2021.
That was driven by a 17.3% drop in electricity prices due to the government’s subsidies, while petrol fell 6.2% in the quarter.
For September alone, CPI rose a muted 2.1% compared with a year earlier, the lowest since July 2021.
Policymakers are more focused on core inflation and the trimmed mean measure increased by 0.8% in the quarter, just above forecasts of a 0.7% gain. The annual pace though slowed to 3.5% from 4.0%.
The RBA has held its policy steady since November, judging the current cash rate of 4.35% – up from 0.1% during the pandemic – is restrictive enough to bring inflation to its target band of 2-3% while preserving employment gains.
The labour market has stayed surprisingly resilient, an argument against early rate cuts. But the easing in annual core inflation comes ahead of the RBA’s projection for it to slow to 3.5% by the end of the year.
Services inflation remains a source of concern for the RBA, staying elevated at 4.6% in the third quarter, slightly higher than the June quarter’s 4.5%, and little changed over the past 12 months.
The central bank will have an updated set of economic forecasts when it decides on its next move on Tuesday.
