Inflation in Australia declines faster than forecast in Feb
2023.03.28 21:51
Inflation in Australia declines faster than forecast in Feb
By Tiffany Smith
Budrigannews.com – In February, Australian inflation slowed to an eight-month low as a result of a sharp decline in holiday travel and lodging, bolstering the case for a pause in interest rate increases next month.
Wednesday’s consumer price index (CPI) data from the Australian Bureau of Statistics showed the slowest annual increase since June of last year, rising 6.8% in February. That was lower than market forecasts of 7.1% and 7.4% the month before.
February saw a 0.2% increase in the monthly CPI index over January. In the year to February, prices excluding volatile items like fuel and fruits and vegetables increased by 6.9%, down from 7.5% in January.
Investors reacted by lowering bets on a 25-basis point increase at the April policy meeting to just 5%, down from 15% before, and lowering the local dollar by 0.2% to $0.6694.
According to Marcel Thieliant, a senior economist at Capital Economics, “The further sharp fall in inflation combined with the softness of consumption will probably prompt the Reserve Bank of Australia to pause its tightening cycle next week.” Wednesday’s data revealed that a monthly decrease of 14.6% in the cost of holidays and travel had pushed inflation lower in February.
This is good news for the RBA, which has raised interest rates 350 basis points to a record high of 3.6 percent over the past 11 years in an effort to keep inflation in check.
There has been a mixed bag of data released recently. Although consumer spending has decreased, employment in Australia experienced a strong rebound in February, the unemployment rate fell back to levels close to 50-year lows, and business conditions remained resilient.
Investors have virtually priced out any possibility of further increases in the cash rate and even predicted a possibility of a cut later in the year as a result of the recent turmoil in the global banking system that threatens to significantly tighten financial conditions.
Even though many analysts still believe that the RBA will raise interest rates at least once more, some believe that it may hold off until April before moving in May in response to data on inflation for the first quarter.
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