Australian Q2 core inflation restated downward, A$ slips

SYDNEY: Key measures of Australian underlying inflation have been restated to show they rose by much less than reported in the second quarter, a relief to policy makers that should lessen the urgency for a hike in interest rates.

The changes came on Wednesday in an information paper from the Australian Bureau of Statistics outlining a new seasonal adjustment method for the consumer price index.

The paper showed the important trimmed mean measure of consumer prices had risen 0.7 percent in the second quarter, from the first, a downward revision from the original 0.9 percent increase.

The weighted median measure of inflation was shown as rising 0.5 percent in the quarter, compared to the previous 0.9 percent increase.

The originally reported increases of 0.9 percent for both measures had been much higher than expected at the time and a major reason the Reserve Bank of Australia (RBA) had considered lifting interest rates as recently as August.

"Inflation still trended higher over the first half of the year but the changes now make the second quarter look less threatening," said Michael Blythe, chief economist at Commonwealth Bank of Australia.

"It should make the RBA more comfortable about standing still on rates for the time being."

Wednesday's downward restatement of underlying inflation nudged bond and bill futures higher and added to pressure on the local dollar, which slipped half a cent to $1.0255 .

Last month, RBA Governor Glenn Stevens said the central bank had considered raising rates because underlying inflation seemed to be heading higher at a faster pace than expected.

They only put off a hike because turmoil on global markets and debt woes in the United States and Europe had clouded the outlook for world growth.

Since then the global outlook has only become grimmer, leading Stevens to say it was best for policy to remain on hold while markets were so uncertain.

"The changes today show the pulse of inflation was not as strong as thought and it's starting from a lower base," said Michael Turner, a strategist at RBC Capital Markets.

"It should ease some of the RBA's concerns on the inflation outlook, if not all of them."

The new ABS data did show that the annual pace of underlying inflation was only slightly slower in the second quarter.

The trimmed mean, which strips out the biggest price falls and rises, was now shown to have risen 2.6 percent from the second quarter of last year, down from an initially reported 2.7 percent.

The weighted median rose 2.6 percent for the year, compared with the initial 2.7 percent.

The ABS is also revising the weightings of all the components of the consumer price index, and will publish a paper on those changes on September 22.

This could also result in revisions to past inflation readings.

As part of these changes the ABS has seasonally adjusted many more of the goods and services that make up the CPI and the underlying measures.

It will now adjust 64 of the different expenditure classes of the trimmed mean and weighted median, up from just 20 previously. It will also produce a seasonally adjusted version of the headline CPI number.

All of this will be included in the CPI for the third quarter due on October 26.

Copyright Reuters, 2011