Australia's Q2 Consumer Price Index (CPI) and June headline inflation figures came in below market expectations, reducing pressure on the Reserve Bank of Australia (RBA) to raise interest rates further, according to TD Securities strategists [1]. The Q2 trimmed mean CPI, a core inflation measure closely watched by the RBA, registered at 3.6% year-over-year, undershooting the RBA's May Statement of Monetary Policy forecast of 3.8% year-over-year [1]. On a quarterly basis, the trimmed mean CPI was 0.81%, nearly unchanged from Q1's 0.84% [1].
June's headline CPI also surprised to the downside, printing at 3.8% year-over-year compared to a consensus estimate of 4.0% and a prior reading of 4.0% [1]. Housing was identified as the largest contributor to the headline CPI in June, followed by food and recreational services [1]. The strategists note that economic activity, particularly in the housing sector, is slowing in response to previous rate hikes [1].
TD Securities expects the RBA to maintain its current policy stance and remain in 'pause and observe' mode at the upcoming August meeting, awaiting further inflation data for guidance [1]. Additional clarity on the RBA's inflation outlook is anticipated from a fireside chat with the RBA's Chief Economist Hunter scheduled for tomorrow [1].
CONCLUSION
Softer-than-expected inflation data in Australia has eased the immediate pressure on the RBA to hike rates, supporting expectations for an extended pause. Market participants are now looking to upcoming commentary from RBA officials for further policy direction.