For the second quarter, Australian data indicated inflation was lower than expected. The cheaper domestic vacations and gas contributed to this trend. It also reduced stress on the RBA in light of the impending increase in interest rates.
Investors have become more optimistic about the Reserve Bank of Australia increasing interest rates at their upcoming meeting as a result of this development. The likelihood of a quarter-point increase in the benchmark interest rate is currently estimated to be 31%, up from 50% before the data was revealed.
The consumer price index went up by 0.8% during the second quarter, making it the quarter with the smallest gain since the third quarter of 2021. This result was in line with market expectations of a 1.0% increase. The inflation rate during the first quarter was 1.4%.
The annual inflation rate fell from 7% to 6%, lower than the 6% predicted by economists. The CPI increased by 5.4% in June, down slightly from the 5.5% increase seen in May.
The highly watched core inflation rate increased by 0.9% in the quarter ending in June, bringing the annual rate down to 5.9% from the 6.0% predicted.
The Australian currency dropped 0.9% on this data before staging a minor recovery. The current price is $0.6765, a loss of 0.4%. The three-year bond futures increased by 5 points, reaching 96.09. By year's end, rates are expected to reach 4.32%, up from 4.42% before the report publication.
The Reserve Bank of Australia, which had previously warned of higher prices in the current quarter due to pressure on wages, greater energy costs, and rising inflation in the services sector, no longer forecasts price increases in August after the release of the CPI report.
Even while analysts have a positive outlook for inflation in consumer prices in July, they anticipate that it will be challenging to bring inflation down once the month is over, and they anticipate that it will most likely climb up in September.
In Australia, headline inflation continues to be much higher than the goal range of 2% to 3% set by the RBA. It is not expected to return to the top of the bank's target level until the middle of the year 2025, according to the predictions.
The labor market is still quite tight even after a 400 basis point rate hike. The number of jobs added to the economy in June was higher than anticipated, and the unemployment rate remained at or near a 50-year low. The Reserve Bank of Australia has issued a warning over this matter, stating that additional tightening may be required to control inflation.
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