Australian Inflation Accelerates, Paring RBA Rate-Cut Bets

Australian consumer prices gained more than economists forecast last quarter, sending the nation’s currency higher as investors pared bets the central bank will cut interest rates.

The trimmed mean gauge of core prices rose 0.7 percent from the previous quarter, the Bureau of Statistics said in Sydney today, compared with the median forecast of 26 economists for a 0.6 percent gain. The consumer price index advanced 1.4 percent from the previous three months, compared with a forecast 1 percent increase.

Traders priced in a 77 percent chance of a rate reduction Nov. 6, down from 95 percent yesterday, swaps data compiled by Bloomberg showed after the figures were released. Reserve Bank of Australia Governor Glenn Stevens lowered borrowing costs in May and June as Europe’s debt crisis threatened global growth and China’s economy slowed, and again this month.

“There’s still a risk of inflation, although people seem to think the inflation genie has been killed,” Warwick McKibbin, a former member of the RBA’s board, said at a Citigroup Inc. conference in Sydney today. “There is still a very strong inflationary impulse inside the Australian economy and that’s something that the central bank needs to worry about.”

Currency Reaction

The nation’s currency advanced, buying $1.0290 at 12:16 p.m. in Sydney compared with $1.0274 immediately before the report.

Today’s report showed a 3.2 percent increase in the cost of housing, which is the biggest component of the index. It showed electricity prices surged 15.3 percent in the period.

Median weekly rents for houses rose 1.6 percent and apartments climbed 0.2 percent in the three months ended Sept. 30, according to Sydney-based researcher Australian Property Monitors. Australia also started charging its largest polluters for carbon emissions on July 1 as the nation aims to meet its target of a 5 percent cut in emissions from 2000 levels by 2020.

The cost of food and non-alcoholic drinks, which at 16.8 percent is the second-biggest component in the consumer-price basket, advanced 1.9 percent, the report showed.

Food Prices

Woolworths Ltd. (WOW), Australia’s largest retailer, posted the fastest first-quarter sales growth from supermarkets open at least a year since 2009 as promotions and higher food prices drove revenue. Growth was helped by a return of food inflation, after three consecutive quarters of declining prices, Grant O’Brien, Woolworths chief executive officer, said in an Oct. 18 analyst briefing.

The cost of transport, which includes motor vehicles and automotive fuel and accounts for 11.6 percent of the basket, fell 0.8 percent, the report showed, as automotive fuel dropped 3.9 percent.

The weighted-median gauge of inflation, another core measure that excludes the largest price increases and declines, advanced 0.8 percent in the third quarter, compared with economists’ estimates for a 0.6 percent gain. That nudged the annual rate to 2.6 percent versus a forecast 2.2 percent rise.

On an annual basis, the trimmed mean gauge advanced 2.4 percent, compared with economists’ forecasts for a 2.2 percent increase.

RBA Target

That lifted average core inflation to 2.5 percent on an annual basis, in the middle of the central bank’s target range of 2 percent to 3 percent.

The CPI increased 2 percent in the third quarter from a year earlier, compared with economists’ forecast a 1.6 percent increase, today’s report showed.

The statistics bureau released a seasonally adjusted consumer price index that showed a 1.2 percent increase last quarter, for an annual gain of 2 percent.

The RBA said in minutes of its October meeting last week that it saw signs the pace of global growth had “edged down.”

The board observed “that the outlook for inflation was consistent with” the 2 percent to 3 percent target range over the next one to two years, the minutes showed.

Even after this month’s rate cut, Stevens has among the most monetary firepower among major developed economies. Benchmark rates are near zero in the U.S. and Japan, 0.5 percent in the U.K., 0.75 percent in the euro area, 1 percent in Canada and 2.5 percent in New Zealand.

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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