Australia’s Slower Inflation Expands RBA Rate-Cut Scope: Economy

Australian consumer prices gained less than economists forecast last quarter on cheaper food and health care, pushing down the local dollar and giving the central bank scope to reduce interest rates.

The trimmed mean gauge of core prices rose 0.6 percent from the prior quarter, the Bureau of Statistics said in Sydney today, compared with the median forecast of 26 economists for a 0.7 percent gain. The broader consumer price index advanced 0.2 percent from three months earlier, half the forecast increase.

The data contrast with quicker consumer-price growth in Singapore last month, while the Bank of Japan tries to bolster its economy with a 2 percent CPI target. In Australia, moderating prices validate Reserve Bank Governor Glenn Stevens’s decision to cut rates 1.75 percentage points since Nov. 1, 2011, and revive non-mining areas of the economy.

“Today’s figures tell us we saw a slowdown in the Australia’s economy in the second half of the year,” said Paul Bloxham, chief economist for HSBC Holdings Plc in Sydney and a former RBA official who forecast a trimmed mean CPI rise of 0.6 percent. “We’re seeing signs globally that there’s a turnaround and we’re seeing early signs that monetary policy is lifting the Australian economy.”

The so-called Aussie weakened, buying $1.0538 at 4:49 p.m. in Sydney compared with $1.0559 immediately before the report. The yield on 10-year government debt fell to 3.29 percent from 3.36 percent yesterday. Investors see a 48 percent chance the RBA will reduce the benchmark rate at its Feb. 5 meeting, interest-rate swaps data compiled by Bloomberg show.

Grocery Wars

Competition between Australia’s two largest supermarket chains, Woolworths Ltd. and Wesfarmers Ltd.-owned Coles, has also driven grocery discounts. A push to sell milk at A$1 ($1.05) a liter contributed to a 27 percent profit fall at the dairy and drinks division of Kirin Holdings Co.’s Lion unit, the company said in August.

In Asia, Singapore’s consumer prices rose 4.3 percent in December from a year earlier after a 3.6 percent climb the prior month, a government report showed today. In Malaysia, inflation probably accelerated to 1.4 percent in December from 1.3 percent, a survey showed before figures due out later today.

Bank of Japan Governor Masaaki Shirakawa yesterday agreed to set the 2 percent inflation target urged by Prime Minister Shinzo Abe, stopping short of immediate action to achieve it. Most Asian stocks fell today, with Japanese shares trading lower as the yen strengthened. The MSCI Asia Pacific Index fell 0.6 percent as of 2:56 p.m. in Tokyo.

European Sentiment

Elsewhere, euro area consumer sentiment and French business confidence probably improved in January, economists predicted. The Bank of England will release the minutes of its Jan. 10 meeting, and a survey forecasts the U.K. statistics office will say jobless claims rose in December.

The Washington-based International Monetary Fund is scheduled to release an update to its World Economic Outlook today. The U.S. Mortgage Bankers Association will report mortgage applications for the week ended Jan. 18, while a survey predicted the U.S. Federal Housing Finance Agency will say home prices gained 0.7 percent in November from the previous month.

Today’s Australia report showed food and non-alcoholic beverages dropped 0.1 percent in the fourth quarter as vegetable prices declined 5.7 percent. Health-care costs slumped 0.9 percent as pharmaceutical products fell 3.5 percent, it showed.

Fuel Rise

Prices for transportation gained 0.7 percent as fuel advanced 2.6 percent, the report showed. Clothing and footwear increased 0.8 percent.

Contained prices are a boost to Prime Minister Julia Gillard’s government, trailing in opinion polls, as it seeks re-election later this year. “Contained inflation is one of the things that gives the central bank room to move when it comes to monetary policy,” Treasurer Wayne Swan told reporters in Brisbane today.

Today’s report showed the weighted-median gauge of inflation, a separate core measure that excludes the largest price increases and declines, advanced 0.5 percent in the fourth quarter, compared with economists’ estimates for a 0.6 percent gain. That took the year-on-year rate to 2.3 percent versus a forecast 2.4 percent rise.

From a year earlier, the trimmed mean gauge advanced 2.3 percent, compared with economists’ forecasts for a 2.4 percent increase.

Inflation Target

The central bank has a goal of keeping inflation in a 2 percent to 3 percent range on average, and typically uses as its guide the core measures -- those that strip out items with the biggest price moves. The RBA’s official cash rate is 3 percent, matching a half-century low set during the 2009 global recession.

The CPI increased 2.2 percent in the fourth quarter from a year earlier, compared with economists’ estimates for a 2.4 percent increase.

The statistics bureau released a seasonally adjusted consumer price index that showed a 0.5 percent increase last quarter, for a year-over-year gain of 2.2 percent.

“While the Reserve Bank will debate another rate cut at the February board meeting, the recent improvement in the global economic outlook, rising share markets, healthy house prices and improving confidence levels may stay board members’ hands,” said Savanth Sebastian, an economist in Sydney at a unit of Commonwealth Bank of Australia. “The central bank is unlikely to want rates to get too far from normal unless conditions take a drastic turn for the worse.”