Australian core consumer prices rose last quarter at the slowest pace since 1998, driving the currency and bond yields lower as investors increased bets the central bank will resume cutting interest rates next week.
The so-called trimmed mean gauge of core prices advanced 0.3 percent from the previous quarter, the Bureau of Statistics said in Sydney today, the lowest rate since the third quarter of 1998. The consumer price index rose 0.1 percent from the previous three months, compared with 0.6 percent forecast in a Bloomberg News survey, as banana prices slipped 60 percent.
Yields on Australian five-year bonds fell to a record low and the currency weakened as the data boosted chances Reserve Bank Governor Glenn Stevens will make good on signals he will cut the 4.25 percent benchmark should inflation ease. Price gains are slowing as tourism and manufacturing industries struggle with a currency that has risen 58 percent in 3 1/2 years, while resource-rich regions benefit from a mining boom.
A rate cut next week is “absolutely a done deal,” Ivan Colhoun, head of Australian economics and property research at Australia & New Zealand Banking Group Ltd., said in a Bloomberg Television interview in Sydney. “There’s no reason why the Reserve Bank cannot be a little bit more accommodative for the sectors of the economy that have been hit.”
The nation’s dollar, which has remained above parity with the U.S. currency for the past four months, touched $1.0247, the cheapest since April 11, compared with $1.0319 immediately before the report.
Asian stocks swung between gains and losses as Australian shares rallied after the inflation report, tempering earlier losses sparked by political uncertainty in Europe. The MSCI Asia Pacific Index fell 0.5 percent to 122.99 as of 1:25 p.m. in Tokyo.
Australian bonds advanced, pushing yields on the five-year note down to a record 3.094 percent. The benchmark 10-year rate slid to a record-low 3.638 percent.
Swaps traders are certain the RBA will reduce borrowing costs by a quarter percentage point to 4 percent at its May 1 meeting, in what would be the first cut this year, a Credit Suisse Group AG index showed. They are pricing in 112 basis points of cuts over the next 12 months, according to a separate Credit Suisse index.
Today’s report showed the cost of food and non-alcoholic drinks, which at 16.8 percent is the second-biggest component in the consumer-price basket, fell 2.1 percent. Fruit plunged 30 percent as the breaking of nearly a decade of drought and a historically mild summer caused a glut of fruit and vegetables.
The recreation and culture group in the index declined 2 percent, led by a 4.8 percent drop in international holiday travel and accommodation as the currency touched a six-month high of $1.0856 on Feb. 29.
In contrast, education gained 6 percent with the start of the new school year, the report showed. Health advanced 4.4 percent, led by a 14.1 percent rise in pharmaceutical products.
Elsewhere, data today from the U.S. may show that housing is stabilizing. A report from the Commerce Department may show new-home sales rose 1.6 percent to a 318,000 annual rate in March, according to economists surveyed.
Consumer confidence data are due in France and the U.S., while Canada will announce retail sales figures for February.
Hong Kong may today report that exports rose 4 percent in March from a year earlier after January and February numbers were distorted by a Lunar New Year holiday that disrupts production and shipments.
Today’s Australian inflation report showed the weighted-median gauge, a second core measure that excludes the largest price increases and declines, advanced 0.4 percent in the first quarter from the final three months of 2011, compared with economists’ estimates for a 0.6 percent gain.
On an annual basis, the trimmed mean gauge advanced 2.2 percent, compared with economists’ forecasts for a 2.4 percent gain. The weighted median increased 2.1 percent last quarter from a year earlier, versus an estimated 2.3 percent rise, today’s report showed.
The average of the central bank-designed core inflation gauges eased to 2.15 percent in the first quarter from a year earlier, the weakest pace since 1999.
The central bank tries to keep inflation in a range of 2 percent to 3 percent on average. The CPI increased 1.6 percent in the first quarter from a year earlier, the slowest annual pace since the third quarter of 2009, compared with economists’ forecast of a 2.2 percent increase.
The statistics bureau also released a seasonally adjusted consumer price index that showed a 0.2 percent decrease last quarter, for an annual gain of 1.5 percent.
Australia’s economy is being driven by demand from developing nations including China and India for iron ore, coal and natural gas.
The central bank, in minutes of its April 3 policy meeting released last week, said the board will review the inflation outlook when it next meets. “If slower growth in demand could be expected to result in a more moderate inflation outcome, then a case could be made for a further easing of monetary policy,” policy makers said.
The nation’s unemployment rate has held at about 5.25 percent for the past six months even as the currency’s strength hurts manufacturing and tourism. The central bank said in the minutes that “members noted, however, that an easing in average hours worked and a decline in the participation rate were indicative of a softer labor market than implied by the unemployment rate.”
The RBA has more scope to cut borrowing costs than the central banks of New Zealand, Norway, Sweden, Canada and the euro region, where benchmark policy rates range from 1 percent to 2.5 percent. Rates in Japan and the U.S. are near zero.
Australian Treasurer Wayne Swan today said inflation is at the bottom of the RBA’s target range and, together with a projected budget surplus, the central bank has room for another round of monetary easing.