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Australian Inflation Slows, Easing Pressure on Reserve Bank



Annual Inflation at 6.8%

Australia’s annual inflation rate slowed in February due to smaller rises for fuel and housing, providing evidence that the worst of the price increases have passed. The consumer price index rose at the annual pace of 6.8% last month, the slowest since June of last year. The biggest contributors to February’s annual increase included the cost of housing, which rose 9.9% from a year earlier, followed by food and non-alcoholic beverages at 8%, and a 4.8% increase in rents.

New Series for Electricity Prices

Electricity prices were 17.2% higher than in February 2022, with more increases expected after June with new hikes up to a third in effect. “New dwellings grew 13% in the 12 months to February, which is the lowest annual growth since February 2022, as price rises for building materials continue to ease,” Michelle Marquardt, Head of Prices Statistics at ABS said.

Fall in Australian Dollar

The Australian dollar fell slightly after the release of the inflation numbers, while stocks erased their modest losses for the day, indicating that investors trimmed their bets on the Reserve Bank lifting its key interest rate next week. The inflation figures are the last major piece of data ahead of the RBA board’s meeting next Tuesday.

Relief on Fuel Prices Front

There is relief on the energy front, with automotive fuel prices rising at an annual rate of 5.6% last month, the slowest pace in two years. In June last year, fuel costs were rising at an annual clip of 43.2% after Russia’s invasion of Ukraine. Travel and accommodation increased at an annual pace of 14.9% in February, whereas in December, a post-pandemic surge sent prices skyrocketing.

RBA Pause for Thought

The Greens treasury spokesperson, Nick McKim, said the February CPI numbers were “the strongest indication yet that inflation has peaked” and the RBA should now cease lifting borrowing costs. After the RBA’s minutes for its 7 March meeting, board members were prepared to consider a pause in the coming months. EY’s chief economist, Cherelle Murphy, said the February data “provided welcome evidence that domestic services inflation may have peaked after a sharp increase towards the end of last year”.

Rate Rises Likely to Continue

KPMG Australia’s chief economist, Brendan Rynne, noted that core inflation, excluding volatile-price items, also fell from 7.5% in January to 6.9%. “While today’s data will give the RBA pause for thought, KPMG believes inflation is still sufficiently high and employment too strong for the RBA to call a halt to the cash rate rises just yet,” Rynne said. “We believe, as other main central banks have done this month, the RBA will raise the rate again next week.”

Slowdown Risk to Westpac’s Prediction

Justin Smirk, a senior Westpac economist, said February alone saw prices rise 0.2% compared with the previous month, well shy of his bank’s forecast of a 0.8% increase. “Compared to the average monthly increase of 0.9% through the last three months of 2022, the first two prints of 2023 represent a meaningful moderation in the inflationary pace,” Smirk said. January alone would have been a 0.4% fall. The slowdown puts at risk Westpac’s current prediction that the March quarter CPI increase will come in at 1.5%, he said.



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