Australian consumer prices fell in the first quarter for the first time since 2008 during the global financial crisis, data showed yesterday, putting pressure on the central bank to cut interest rates and sending the local dollar tumbling.
The statistics bureau said the consumer price index (CPI) fell 0.2 percent in the quarter from the previous three months — when prices had risen 0.4 percent — as plunging world oil prices sent the cost of fuel lower.
The Australian dollar sank from US$0.7766 to US$0.7654 soon after the figures were released as traders bet on a fresh cut in interest rates.
Photo: AFP
The Reserve Bank of Australia (RBA) has already slashed borrowing costs to a record low of 2 percent as authorities try to shore up the economy which is exiting an unprecedented mining investment boom at a time of tumbling commodity prices.
For the year to last month, inflation came in at just 1.3 percent, well down from the 1.7 percent hike over the year to December.
ANZ senior economist Jo Masters said the figures were “extremely weak, with both headline and underlying inflation well below expectations.”
The central bank has targeted an underlying rate of between 2 and 3 percent, but the latest figures had the underlying measures of trimmed and weighted mean at 1.7 percent and 1.4 percent in the year to last month.
“Today’s data put the RBA in a difficult position,” Masters said. “The inflation pulse is weak and it now seems likely that underlying inflation will remain below the policy target band for some time. That said, domestic activity looks solid at the moment, although the RBA would be cognizant that some of the tailwinds are likely to fade in the second half of this year.”
Chris Weston, chief market strategist at IG in Melbourne, said inflation had now become “a major headache” for the central bank.
However, TD Securities said it still expected the RBA to keep interest rates at 2 percent when it holds its next policy meeting on Tuesday next week.
“The RBA board does not tend to jump at shadows, and will no doubt next week discuss at length the details of the report,” it said in a note.
The Tuesday RBA meeting comes on the same day Australian Treasurer Scott Morrison releases the federal budget.
Canberra is looking to spur growth as it seeks to rein in a budget deficit that last year ballooned to A$37.4 billion (US$28.52 billion).
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