Australian consumer-price growth unexpectedly slowed in the second quarter, giving the central bank scope to extend a pause in interest-rate increases.
The consumer price index rose 0.6 percent from the first quarter, less than the median forecast in a Bloomberg News survey for a 1 percent advance, a Bureau of Statistics report showed in Sydney. Prices gained 3.1 percent from a year earlier. Recreation, food and communications costs fell, the data showed.
The Australian dollar slid the most in a week as traders abandoned forecasts that Governor Glenn Stevens will next week add to what’s been the most aggressive round of rate increases in the Group of 20. With Chinese demand for natural resources stoking an Australian mining boom that’s pulled down unemployment, price pressures may reemerge later in the year.
“There will be no interest-rate hike next week,” said Rory Robertson, an economist at Macquarie Group Ltd. in Sydney. “The Reserve Bank of Australia will remain on hold for at least the next three months and probably into 2011.”
Australia’s dollar dropped 0.8 percent to 89.35 U.S. cents as of 12:04 p.m. in Sydney, paring its advance over the past two months to about 6 percent. The benchmark S&P/ASX 200 stock index was down 0.2 percent at 4,490.2.
Fun Gets Cheaper
Today’s report showed that recreation costs fell 1.8 percent in the second quarter, the biggest drop since 1989, and food declined 0.3 percent. Communications costs, such as for phones and internet-access bills, slid 0.1 percent. By contrast, alcohol and tobacco jumped 5.9 percent.
Speculation increased last week that Governor Stevens will resume raising rates as early as Aug. 3, potentially hurting Labor Prime Minister Julia Gillard’s bid to win the federal election on Aug. 21.
Gillard, who ousted former leader Kevin Rudd last month, is relying on holding seats in areas of western Sydney and Queensland that have large numbers of households with mortgages.
Stevens kept borrowing costs unchanged this month and in June, after boosting the benchmark lending rate by 150 basis points between early October and May from a half-century low of 3 percent, adding about A$3,600 ($3,200) a year to loan repayments on an average A$300,000 mortgage.
Round the Region
Concern that rebounding economic growth will stoke inflation has prompted policy makers across the Asia-Pacific region to boost rates. India’s central bank increased a key interest rate yesterday more than economists forecast, after Malaysia raised rates three times this year, while Korea and Thailand increased them once. New Zealand is forecast by all 14 economists surveyed by Bloomberg News to boost borrowing costs tomorrow for the second time this year.
Governor Stevens’ interest-rate moves have also helped stoke an 8 percent gain in the nation’s currency against the U.S. dollar in the past 12 months, the second-best performer among the 16 most actively traded currencies.
Traders are betting there’s no chance of a quarter- percentage-point increase in the benchmark rate to 4.75 percent next week, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 11:49 a.m. Prior to today’s report, there was a 28 percent chance of an increase.
“The important question for the board at its next meeting would be whether the new information materially changed the medium-term outlook for inflation,” the bank said in minutes of its July 6 meeting released in Sydney last week.
Core inflation, as measured by the central bank’s so-called trimmed mean gauge, rose 2.7 percent in the second quarter from a year earlier, after gaining 3 percent in the first quarter. Analysts predicted a 3 percent rate. Stevens and his board aim to keep inflation between 2 percent and 3 percent on average.
“I’m not quite ready yet to accept that Australia can grow this well and be this fully employed and not have inflationary pressures,” said Annette Beacher, an economist at TD Securities Ltd. in Singapore. “The RBA’s got time to sit for a few months yet.”
A report published since the bank’s July meeting showed strengthening Chinese demand for raw materials helped stoke a mining boom that has pushed the unemployment rate down to 5.1 percent, below Japan’s level and almost half that of the U.S.
“Inflationary risks are on the upside, with the labor market reaching full capacity over the next year and the strong incomes boost from the terms of trade expected to see demand increasingly stretch the economy’s supply capacity,” Australia’s Treasury department said this week.