Australia Inflation Exceeds Estimates as RBA Rate-Cut Bets Pared

Australia’s consumer prices gained more than economists forecast last quarter, sending the local currency higher as money markets pared bets the central bank will extend its two-year easing of monetary policy this year.

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 25 economists for a 0.6 percent gain. The consumer price index gained 1.2 percent from the previous three months, compared with economists forecast for a 0.8 percent increase.

Reserve Bank of Australia Governor Glenn Stevens reduced borrowing costs eight times -- for a total of 2.25 percentage points -- from November 2011 to a record low 2.5 percent in August. With annual price rises within its 2 percent to 3 percent target, he’s seeking to boost job-intensive industries such as construction as a mining investment boom crests.

“It’s still a story that inflation is subdued but perhaps it’s not so much of a non-issue as markets have thought,” said Besa Deda, chief economist at St. George Bank in Sydney. “It makes the hurdle for an RBA cut a little higher and our expectation is that they won’t cut any further, but will keep rates on hold for longer.”

Non-tradables, or domestic inflation for goods and services that aren’t imported such as fast food and utilities, climbed 1.1 percent from the previous quarter, the report showed.

Tradables, such as imported electrical goods and clothing, rose 1.2 percent in the biggest increase since the second quarter of 2011. Australia’s dollar declined 12 percent in the three months through June.

Stronger Aussie

The currency, which has shown renewed strength since the U.S. Federal Reserve unexpectedly delayed tapering, rose. It bought 97.42 U.S. cents at 11:56 a.m. in Sydney compared with 97.12 immediately before the report.

Investors see an 85 percent chance the RBA will hold rates through year-end, up from 77 percent odds yesterday, data compiled by Bloomberg from swaps contracts show.

Today’s report showed transport prices rose 2.4 percent in the third quarter from three months earlier as fuel prices gained. Housing costs advanced 2 percent as property rates and charges increased.

The weighted-median gauge of inflation, a second core measure that excludes the largest price increases and declines, advanced 0.6 percent in the third quarter, matching economists’ estimates.

On an annual basis, the trimmed mean gauge rose 2.3 percent, compared with economists’ forecasts for a 2.1 percent gain. The weighted median increased 2.3 percent, matching estimates, today’s report showed.

RBA Band

The central bank aims for inflation of between 2 percent and 3 percent on average. The CPI climbed 2.2 percent in the third quarter from a year earlier, compared with economists’ forecast for a 1.8 percent increase.

The statistics bureau also released a seasonally adjusted consumer price index that showed a 1 percent increase last quarter, for an annual gain of 2.3 percent.

The RBA is trying to rebalance the economy as resource investment wanes in the nation’s north and west, and stimulate growth in manufacturing, residential construction and retail in the south and east.

“The likelihood of the RBA cutting the cash rate below the record-low 2.5 percent seems remote,” Katrina Ell, an economist at Moody’s Analytics in Sydney, said before the report. “Interest rate-sensitive sectors are responding to the large pipeline of stimulus filtering through the economy, and further gains are expected in coming months.”

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