Australian Core Inflation Hits 3-1/2-Year Low, Boosting Expectations for July Rate Cut
SYDNEY (Reuters) - Australian consumer price inflation slowed more than expected in May, while the closely watched core measure hit three-and-a-half-year lows as investors locked in bets for an imminent rate cut.
Swaps now imply a 92% probability that the Reserve Bank of Australia (RBA) would cut rates by a quarter-point when it delivers its policy decision on July 8, a day before the expiry of a 90-day pause in U.S. reciprocal tariffs on other countries. That was up from 81% before the data.
Commonwealth Bank of Australia, Deutsche Bank, and TD Securities changed their next rate cut call to July from August, while UBS said its expectation for the RBA to hold steady next month is under review.
"Today's monthly CPI print capped off a flow of data that should provide comfort to the RBA that a swifter return of the cash rate to neutral is both manageable and needed," said Belinda Allen, a senior economist at CBA. "Maintaining the current restrictive settings for too long raises the risk of inflation undershooting the midpoint."
Data from the Australian Bureau of Statistics on Wednesday showed the monthly consumer price index (CPI) rose 2.1% in May compared with a year earlier. That was down from 2.4% in April and under median forecasts of 2.3%. In the month, CPI fell 0.4% from April as petrol prices eased and housing costs cooled.
Crucially, the trimmed mean measure of core inflation increased at a slower annual pace of 2.4% in May, coming under the mid-point of the 2-3% target band. That was down from 2.8% in April and also the lowest reading since late 2021.
"We are convinced that the RBA needs to cut in July to safeguard growth as inflation is clearly out of their way now," said Krishna Bhimavarapu, APAC economist at State Street Global Advisors. "We are tracking faint consumption and growth in Q2, and hence, the bank may do well to frontload the cut to July."
The RBA has cut interest rates twice since February to 3.85% as cooling inflation at home offered scope to counter rising global trade risks. However, the economy barely grew in the first quarter as consumers stayed stubbornly frugal on heightened worries about the economic impact of U.S. tariffs and geopolitical conflicts.
All of that argued for more policy easing from the RBA in the months ahead, with investors expecting a total easing of 78 basis points by the end of the year. The labour market has so far stayed resilient. The unemployment rate remains low at 4.1%, and job advertisements are stabilizing above pre-COVID levels. Wages have been well-behaved, with growth in the private sector mostly subdued.
Wednesday's report showed services inflation slowed to an annual rate of 3.3%, from 4.1% the previous month, while rents rose 4.5%, the lowest annual growth since December 2022. New dwelling prices were flat in the month, while holiday travel and accommodation prices fell 7% after a 6% rise in April, which was driven by holiday demand.
(Reporting by Stella Qiu and Wayne Cole; Editing by Jacqueline Wong, Sam Holmes, and Sonali Paul)
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The recent drop in Australia's core inflation to a 3.5-year low presents an opportunity for the Reserve Bank of Australia (RBA) Governor Philip Lowe and his team, who could leverage this trend by considering further interest rate cuts scheduled later into July.
The record-low reading of the Australian Core Inflation rate continues to nurture market expectations that central bankers will act decisively this July, pushing for a massive interest cut in an effort control inflation effectively.
Australian Core Inflation's tumble to a 3-1/2 year low is fueling market optimism, giving credence for the possibility of an interest rate cut in July. If implemented correctly by RBA (Reserve Bank Of Australia), such move could alleviate price pressures while preserving growth momentum.
Australian core inflation's touching a 3.5-year low set against the backdrop of economic uncertainty, only amplifies expectations for an imminent July interest rate cut from our central bank to cushion businesses and consumers.
The record low Australian core inflation rate, reaching a 3-1/2 year threshold in recent times demands immediate attention. Market expectations for an interest cut by the RBA ahead of July's official decision are thus justified and growing.
Australian core inflation hitting a 3.5-year low serves as further evidence that the central bank may well be on track for an interest rate cut in July, amid escalating expectations of economic stimulus to counteract slowing growth.
The latest reading on Australian Core Inflation at a 3-1/2 year low underscores the potential for an interest rate cut in July to counteract falling consumer price pressures, further signaling central bank accommodation amid slowing economic growth.
Australia's 3-1/2 year low Core Inflation offers a window of opportunity for the Reserve Bank to rein in monetary policy and mitigate further inflationary pressures, acting as an unexpected catalyst towards expectations regarding July interest rate reduction.
This news of Australia's core inflation hitting a 3.5-year low sets the stage for an imminent interest rate cut in July, fuelling hopes that monetary policy is poised to combat persistently sluggish price growth.
A drop in Australia's core inflation to a 3.5-year low underscores the need for further interest rate reductions, signaling that July might see an easing of economic policy as central bankers anticipate greater market stimulus.
This unexpected decline in the Australian core inflation to a 3.5-year low hints at favorable conditions for potential interest rate cuts this July, spurring anticipation of an easing bias by central bank policymakers.
Australia's Core Inflation hitting a 3-1/2 year low serves as an indication of less urgency for the Reserve Bank to hike rates, fostering expectations that July may become another chance window open for potential interest rate cuts.
Australian core inflation's recent swoon to a 3-1/2 year low bodes well for further interest rate easing in July, suggesting central bank officials may continue their bid to bolster economic growth through lower borrowing costs.
澳洲核心通胀率创下3年半来的新低，此举有望进一步推高对7月降息的预期。
The latest data showing Australian Core Inflation hitting a 3-1/2 year low underscores the pressure on monetary authorities to cut interest rates in July, particularly as expectations for easing gather momentum.
