Australia’s January inflation holds at two-year low

A customer looks at products marked with discounted prices on display at a chemist in a shopping mall in central Sydney, Australia, July 25, 2018. REUTERS/David Gray

SYDNEY  – Australian consumer price inflation held at a two-year low in January, dashing forecasts for a tick higher and reinforcing market expectations interest rates would not need to increase any further.

There has been limited market reaction as the January release is heavily weighted toward goods prices that have been falling faster than services, and thus suggest some scope for a downside surprise.

Data from the Australian Bureau of Statistics on Wednesday showed its monthly consumer price index (CPI) rose at an annual pace of 3.4 percent in January, unchanged from December and under market forecasts of 3.6percent.

READ: Australia inflation cools, confidence of ‘soft landing’ grows

A closely watched measure of core inflation, the trimmed mean, rose an annual 3.8 percent, down from 4 percent in December. Inflation excluding volatile items and holiday travel slowed to 4.1 percent from 4.2 percent.

For January alone, CPI fell 0.3 percent from the previous month, driven by declines in holiday travel, clothes and garments and petrol. Holiday travel slumped 5.2 percent from a month earlier.

The Reserve Bank of Australia has raised interest rates by 425 basis points since May 2022 to a 12-year top of 4.35 percent, and has not ruled out the risk of another hike if necessary to bring inflation back to the bank’s target band of 2-3 percent.

READ: Australia’s central bank holds rates steady until at least February

Financial markets are confident the RBA is done tightening. Swaps imply about a 60-percent chance of a first rate cut in August and a total easing of 38 basis points by the end of the year, little changed from before.

The Australian dollar was little changed at $0.6547, and three year bond futures held at 96.26.