Australia's inflation remained unchanged for the third consecutive month in February, reinforcing the Reserve Bank of Australia's (RBA) recent decision to hold interest rates at a 12-year peak.
According to data from the Australian Bureau of Statistics released on Wednesday, the consumer price index (CPI) rose by 3.4% from the previous year, slightly under economists’ predictions of a 3.5% increase, and consistent with the figures for January and December. Notably, the core inflation, which excludes volatile items, softened to 3.9% from 4.1% in January, yet remains above the RBA’s target range of 2-3%. The RBA projects inflation will return to the target range by December 2025.
This steadiness in inflation led to a dip in the Australian dollar to 0.6528, bond yields were little changed, while the ASX200 has risen 0.31% for the session. The reaction in financial markets suggests the release was largely in line with expectations, and traders see little rush for rate cuts, still pricing in a cut in either August or September this year. Following the RBA’s March 19 decision to maintain borrowing costs at 4.35% and abandon its tightening bias, Governor Michele Bullock expressed a cautious optimism that monetary policy measures are on track to realign inflation with targets by 2025.
With eyes now turned to the first-quarter CPI data due on April 24, which will significantly inform the RBA’s economic forecasts ahead of its May board meeting, economists anticipate a potential easing of monetary policy beginning in the third quarter. Market expectations are leaning towards a rate cut as early as August, amidst observations of moderating inflation trends in sectors like housing, which saw a 4.6% increase, and food and non-alcoholic beverages, recording the slowest annual growth since January 2022.
