Australia inflation holds at two-year low for three straight months

SYDNEY: Australian consumer price inflation held at a two-year low in February, contrary to expectations for a slight uptick, in a result reinforcing market wagers that the next move in interest rates would be down.

The Australian dollar eased 10 ticks to $0.6525 and three-year bond futures bounced from earlier lows to be steady at 96.40, while markets continued to bet that any rate relief would likely start in August or September.

Data from the Australian Bureau of Statistics on Wednesday showed its monthly consumer price index (CPI) rose at an annual pace of 3.4% in February, unchanged from January and under forecasts of 3.5%.

For the month, CPI rose 0.2%. The three-month annualised pace is 2.4%, within the central bank’s target band of 2% to 3%.

However, a closely watched measure of core inflation, the trimmed mean, rose an annual 3.9%, up slightly from 3.8% in January. Policymakers had forecast the gauge to fall to 3.6% by June. Holiday travel and accommodation prices fell by a sharp 9.3% in February from a month earlier due to lower demand following the end of the school holiday period.

Slowing inflation is one reason that the Reserve Bank of Australia (RBA) kept interest rates unchanged at 4.35% for a third straight meeting this month and softened its stance by dropping a tightening bias.

RBA Governor Michele Bullock has not ruled anything in or out on policy, saying risks are “finely balanced”.

Markets had long wagered the tightening campaign is over but only a modest amount of 40 basis points in easing is expected this year.

Weakness in the labour market in December and January appeared overstated as data showed the economy added a staggering 116,500 jobs in February and the jobless rate ticked down to 3.7% from a two-year high of 4.1%.

The February CPI report, which provided an update on more services in the first quarter of the year, showed rent inflation accelerated to 7.6% in February from 7.4% the previous month while insurance prices rose 8.4% from a year ago, speeding up from 8.2% in January.