(Adds analyst reaction)
By Wayne Cole
SYDNEY, April 26 (Reuters) - Australian inflation eased
from 33-year highs in the first quarter as the cost of living
saw the smallest rise in more than a year, while core inflation
dipped below forecasts suggesting less pressure for another hike
in interest rates.
Investors reacted by lengthening the odds on the Reserve
Bank of Australia (RBA) resuming raising rates at its May 2
meeting, having paused in April after a 10-hike streak.
Futures now imply only a 9% chance of a quarter-point rise
in the 3.6% cash rate, while the local dollar shed early gains
to stand at $0.6620 .
The market had already moved that way overnight after a
regional U.S. bank reported a huge outflow of deposits,
suggesting global financial strains were not yet over.
Data from the Australian Bureau of Statistics on Wednesday
showed the consumer price index (CPI) rose 1.4% in the March
quarter, just above market forecasts of 1.3% but the smallest
increase since late 2021.
The annual pace slowed to 7.0%, from 7.8%, suggesting
inflation had finally peaked after two years of rapid
acceleration in costs. For March alone, the CPI rose 6.3% on the
year, down from 6.8% in February.
Crucially a closely watched measure of core inflation, the
trimmed mean, rose 1.2% in the March quarter, nudging the annual
pace down to 6.6% and under forecasts of 6.7%.
Still, core inflation remains far above the RBA's target
band of 2-3% and policy makers have been worried it could fuel a
price wage spiral absent further tightening.
Details of the inflation report showed hefty increases for
health services, education, gas and domestic holiday travel and
accommodation. Costs fell for clothing and household goods, a
sign the global pulse in goods prices was clearly easing.
As a result, the CPI for tradable prices that are mainly set
by world trends rose just 0.3% in the March quarter, while
prices for non-tradables that are mainly domestic services
climbed a steep 1.9%.
That divergence could make for a very close call on
rates when the RBA meets next week.
"Headline inflation has peaked, and weaker tradables
inflation will contribute to slower inflation over the rest of
2023," said Sean Langcake, head of macroeconomic forecasting for
BIS Oxford Economics.
"But we think there is enough momentum in core and services
inflation to warrant tighter policy settings, and maintain our
expectation for another rate hike in May."
(Reporting by Wayne Cole; Editing by Shri Navaratnam and Sam
Holmes)
Messaging: wayne.cole.thomsonreuters.com@reuters.net))
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.