Australia inflation at 2-year low, AUD/USD off 2-week high

Australia’s annual inflation rate was reported at 4.1% in the final quarter of 2023, while slowing from 5.4% in Q3.

It has been the lowest inflation reading since the fourth quarter of 2021.

In comparison, market consensus had pointed to a lesser drop – to 4.3%.

Australia’s goods inflation decelerated for the fifth successive quarter, to 3.8% from 4.9% in Q3, data by the Australian Bureau of Statistics showed.

Meanwhile, services inflation eased for the second consecutive quarter, to 4.6% from 5.8% in Q3.

Prices have moderated for food (4.5% YoY versus 4.8% YoY in Q3), housing (6.1% YoY versus 7% YoY in Q3), health (5.1% YoY versus 5.4% YoY in Q3), transport (3.7% YoY versus 5.6% YoY in Q3), recreation & culture (0.5% versus 5.6%) and education (4.7% versus 4.8% in the prior quarter).

In the latest quarter, prices decreased for clothing (-1.1% compared with a 0.9% increase in Q3) and furnishing & household services (-0.2% compared with a 2.5% surge in Q3).

In quarter-over-quarter terms, consumer prices rose 0.6% in Q4, while slowing from a 1.2% rise in Q3.

The surprisingly soft inflation data reinforced investor expectations of an earlier cut in Australia’s interest rates.

The Reserve Bank of Australia is largely expected to keep interest rates on hold at its policy meeting next week.

Futures markets are now pricing in about 70% chance of a RBA rate cut in June.

The Aussie Dollar was last losing 0.35% on the day against its US counterpart, with the AUD/USD currency pair trading at 0.6579. The major currency pair has pulled back from yesterday’s 2-week high of 0.6624.