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Australia Core Prices Quickened Last Quarter, Near Estimates

Australian core consumer prices accelerated last quarter close to the pace economists forecast, giving the central bank scope to extend a pause in interest-rate cuts next month.

The so-called trimmed mean gauge of core prices rose 0.5 percent from the previous quarter, the Bureau of Statistics said in Sydney today, compared with the median forecast of 21 economists for a 0.6 percent gain. The consumer price index increased 0.5 percent in the second quarter from the previous three months, compared with a forecast 0.6 percent advance.

The local currency rose as investors pared bets Reserve Bank of Australia Governor Glenn Stevens will lower the 3.5 percent benchmark rate next month. The central bank reduced borrowing costs in May and June as Europe’s debt crisis threatened global growth and China’s economy slowed. It kept rates unchanged this month, citing stronger domestic growth momentum.

“Today’s result isn’t low enough for the central bank to get off the sidelines and cut rates again in August,” said Katrina Ell, an economist at Moody’s Analytics in Sydney. “The central bank seems comfortable with the current policy setting.”

Traders are pricing in a 56 percent chance the RBA will reduce borrowing costs by a quarter point to 3.25 percent at the next policy meeting on Aug. 7, down from 77 percent yesterday, data compiled by Bloomberg based on swaps trading showed.

Currency Rebounds

The nation’s currency, which touched an eight-month low of 95.82 U.S. cents on June 1, reversed losses after the data. The so-called Aussie was at $1.0226 at 12:18 p.m. in Sydney compared with $1.0190 immediately before the report and $1.0221 at yesterday’s close in New York.

Today’s report showed rents increased 1.1 percent last quarter, vegetable prices advanced 5.2 percent and fruit gained 3.8 percent. Costs for domestic holiday travel and accommodation fell 4 percent, and audio, visual and computing equipment declined 3.8 percent, it showed.

Median rents for houses rose 0.7 percent and apartments climbed 2.5 percent in three months ended June 30, according to Sydney-based researcher Australian Property Monitors.

Cheaper fresh produce “was mainly due to cooler weather conditions with rain and flooding affecting crops in the eastern states,” today’s report showed. Fruit prices plunged in the first quarter as supplies rebounded from an earlier deluge.

On an annual basis, the trimmed mean gauge advanced 2 percent, compared with economists’ forecasts for a 1.9 percent increase, today’s report showed.

Weighted Median

The weighted-median gauge of inflation, another core measure that excludes the largest price increases and declines, advanced 0.7 percent in the second quarter, compared with economists’ estimates for a 0.6 percent gain. That nudged the annual rate to 1.9 percent, matching economists’ forecasts.

The central bank aims to keep inflation in a 2 percent to 3 percent range on average, and typically uses as its guide the core measures -- those that exclude items with the biggest price moves.

The CPI increased 1.2 percent in the second quarter from a year earlier, compared with economists’ forecast a 1.3 percent increase.

The statistics bureau released a seasonally adjusted consumer price index that showed a 0.6 percent increase last quarter, for an annual gain of 1.2 percent.

The RBA cut the cash rate four times since November -- by 25 basis points at successive meetings in November and December, by 50 points on May 1 and by another 25 points last month.

‘Bottom End’

“Whatever way you cut up today’s data the bottom line is that underlying inflation at mid-year was traveling at around 2 percent per annum, the bottom end of the RBA’s target band,” said Michael Blythe, chief economist in Sydney at Commonwealth Bank of Australia. (CBA) “Inflation, actual and prospective, at the bottom end of the band clearly leaves scope for the RBA to cut interest rates if necessary.”

Still, the theme of recent central bank commentary is that “a lot of policy stimulus has been applied over the past six months or so and now is the time to see what impact that stimulus is having,” said Blythe, who put back his forecast for the next rate cut to November from August.

Stevens said in response to questions after a speech on Sydney yesterday that “we think the setting’s about right for the circumstances we face.”

Even after the June rate cut, Australia has the highest borrowing costs among major developed nations as Stevens seeks to manage an economy powered by the biggest resource boom since prospectors in New South Wales set off a gold rush in the 1850s.

Manufacturing, Tourism

That has spurred about a 45 percent appreciation in the dollar since the start of 2009 that has hurt manufacturing and tourism that are vulnerable to international competition.

Australian wholesale price inflation accelerated last quarter for the first time in more than a year, driven by higher import prices and agriculture and petroleum refining costs, a government report showed this week.

Today’s inflation data report showed transport costs rose 0.9 percent in the three months through June 30. The average monthly price of automotive fuel gained 2.5 percent in April before falling 3.2 percent in May and 6.4 percent in June.

The price of crude oil plunged 18 percent in New York futures trading in the second quarter, touching the lowest level in about nine months in late-June.

To contact the reporter on this story: Michael Heath in Sydney at mheath1@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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