Australia Aug inflation data adds to case for pause in rate hikes next month

SYDNEY: Gains in Australia’s inflation for August were in line with expectations and a measure of core inflation eased further, lessening pressure on the central bank to hike interest rates next month.

Australia’s monthly consumer price index (CPI) rose 5.2% in the year to August, up from 4.9% the previous month and the first rise in the pace of gains in four months.

But the increase was mostly driven by a surge in fuel prices due to global supply factors. A closely watched measure of prices excluding volatile items and holiday travel eased to 5.5% from 5.8%.

“Inflation’s downtrend stumbled in August… But it’s too early to say inflation is rearing its head again,” said Harry Murphy Cruise, an economist at Moody’s Analytics.

“Of course, there are plenty of pain points… Rising services inflation also continues to dampen the ‘good’ news —quickly falling goods inflation. Still, the positives outweigh the negatives.”

After the data, markets slightly increased the bets for a fourth straight rate pause from the Reserve Bank of Australia next month to 92% from 87%.

A rate hike won’t come until May next year, according to market pricing.

“We view the uptick in inflation in August as a temporary hump in the downward trend in train since December last year,” said Stephen Wu, an economist at Commonwealth Bank of Australia.

“We think the RBA will be inclined to see it that way too when it meets next Tuesday for the October rate decision.”

Some economists, however, expect the bank to hike one more time before the end of the year, likely in November, after the release of the third-quarter inflation report.

“I think there is a decent chance that we’re going to get something from the RBA maybe in November or December, once we get the next couple of months of inflation numbers through,” said Rob Carnell, Asia-Pacific head of research at ING.

The RBA has jacked up rates by 400 basis points since May last year to an 11-year high of 4.1% and warned that rates may need to rise further to contain inflation.

Fuel prices were a big driver of inflation last month, jumping 13.9% in the biggest annual rise since November 2022. They are set to climb further this month given that international oil prices have hit two-month highs.

Electricity prices continued to rise briskly at an annual rate of 12.7%, although monthly gains were offset by government rebates.

Among services, insurance prices rose to 8.8% up from 8.5% the previous month, while rent inflation picked up to 7.8% from 7.6%.

On a monthly basis, CPI rose 0.6% in August, accelerating from a 0.3% gain in July.

The Australian dollar was little changed at around 64 cents and three-year government bond yields eased 3 basis points to 4.029%.