Australian consumer prices rose by far less than feared in the last quarter, while a key measure of underlying inflation ran at the slowest pace in over a decade, suggesting interest rates might not have to rise for some months to come. The Australian dollar skidded half a cent and interbank futures jumped as the market pared back the probability of an interest rate rise this side of June.
The Reserve Bank of Australia (RBA) holds its February policy meeting next week and was already thought almost certain to keep rates at 4.75 percent, given that the full impact of the Queensland floods on the economy is far from clear. Investors are now pricing in one hike of 25 basis points for the second half of this year and just 30 basis points of tightening for the next 12 months.
Australia's consumer price index (CPI) rose just 0.4 percent in the fourth quarter of 2010, compared with the third quarter when it rose 0.7 percent. That was the smallest increase in almost two years and well below the 0.7 percent forecast.
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