Australian Inflation Eases in Q1, Slowing Pressure for Interest Rate Hike
Zatrun Published at April 26, 2023

According to data from the Australian Bureau of Statistics, Australian inflation eased in the first quarter of 2023, showing the smallest increase in over a year. The consumer price index (CPI) rose by 1.4%, just above market forecasts of 1.3%, but the smallest increase since late 2021. The annual pace slowed to 7.0%, down from 7.8%, indicating that inflation had finally peaked after two years of rapid acceleration in costs. If the news caught your attention, continue reading the content below.

Australian Inflation

The trimmed mean, a closely watched measure of core inflation, rose by 1.2% in the March quarter, which is below the forecasted 6.7%. However, it remains far above the Reserve Bank of Australia’s (RBA) target band of 2-3%.

Australian Inflation Eases, Lessening Pressure for Interest Rate Hike

The easing of inflation has lessened the pressure on the RBA to raise interest rates. Investors reacted by lengthening the odds on the RBA resuming raising rates at its May 2 meeting, having paused in April after a 10-hike streak. Futures now imply only a 9% chance of a quarter-point rise in the 3.6% cash rate, while the local dollar shed early gains to stand at $0.6620.

The divergence between tradable and non-tradable prices could make it a close call on rates when the RBA meets next week. While the slowing of headline inflation and weaker tradable prices could contribute to slower inflation over the rest of 2023, there is enough momentum in core and services inflation to warrant tighter policy settings, said Sean Langcake, head of macroeconomic forecasting for BIS Oxford Economics.

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