Australia’s Slowing Inflation Restrains Rate-Rise Bets: Economy

Australia’s core inflation slowed last quarter, sending the currency lower as investors eased bets on the likelihood of an interest-rate increase.

The 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 25 economists for a 0.7 percent gain. The consumer price index advanced 0.6 percent from the previous three months, compared with a 0.8 percent median estimate.

The data may damp speculation that surging house prices, a looming building boom and falling unemployment would spur Reserve Bank of Australia Governor Glenn Stevens to raise the key rate from the current record-low 2.5 percent. Policy makers have reduced borrowing costs by 2.25 percentage points since late-2011 as the local dollar’s strength dragged on growth and a mining investment boom crested.

“The Reserve Bank can comfortably keep interest rates at exceptionally low levels over the near term,” said Savanth Sebastian, an economist at a unit of Commonwealth Bank of Australia in Sydney. “Whichever way you cut it, inflation is well and truly in check.”

Non-tradables, or domestic inflation for goods and services that aren’t imported such as fast food and utilities, climbed 3.1 percent from a year earlier, the report showed. Tradables, such as imported electrical goods and clothing, rose 2.6 percent.

Currency Falls

The currency bought 92.92 U.S. cents at 1:25 p.m. in Sydney compared with 93.75 cents immediately before the report. The Aussie advanced 3.9 percent last quarter, the biggest gain among the Group of 10 currencies besides the kiwi.

Traders are pricing in 15 basis points of rate increases in the next 12 months, down from 19 basis points yesterday, according to a Credit Suisse Group AG index based on swaps data.

Today’s report showed clothing and footwear prices declined 2.1 percent in the first quarter from the previous three months and furnishings and household equipment fell 1.5 percent. Education costs gained 5.1 percent from a quarter ago and health increased 2.6 percent.

The weighted-median gauge of inflation, a second core measure that excludes the largest price increases and declines, advanced 0.6 percent in the first quarter, compared with the estimate for a 0.7 percent gain.

On an annual basis, the trimmed mean gauge advanced 2.6 percent, compared with economists’ forecasts for a 2.9 percent gain. The weighted median increased 2.7 percent versus an estimated 2.9 percent rise, today’s report showed.

Inflation Target

The central bank aims for inflation of between 2 percent and 3 percent on average. The CPI increased 2.9 percent in the first quarter from a year earlier, compared with economists’ forecasts for a 3.2 percent gain.

The statistics bureau also released a seasonally adjusted consumer price index that showed a 0.5 percent increase last quarter, for an annual gain of 2.9 percent.

The RBA cut rates to a record low to try to rebalance the economy away from mining regions in the north and west as investment wanes, and stimulate growth in residential construction and retail in the south and east.

House and apartment prices in Australia’s largest cities surged 10.6 percent in the year to March 31, led by a 15.6 percent increase in Sydney. Stevens last month said Australia was set to have a “boom” in residential construction.

Unemployment Drop

The nation’s unemployment rate unexpectedly declined in March to 5.8 percent from a revised 6.1 percent the previous month, the biggest drop since August 2010, a government report earlier this month showed.

The number of full-time jobs declined by 22,100 in March, and part-time employment rose by 40,200, the report showed. Australia’s participation rate, a measure of the labor force in proportion to the population, dropped to 64.7 percent in March from a revised 64.9 percent a month earlier.

About 50,000 jobs in the auto and parts industry are in jeopardy after Toyota Motor Corp. in February followed General Motors Co. and Ford Motor Co. in announcing plans to quit manufacturing in the country.

Today’s inflation “data give the RBA the confirmation it needs to keep rates low,” Katrina Ell, an economist at Moody’s Analytics in Sydney, said before the report.

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