Australian Dollar: Softer CPI keeps RBA on hold – TD Securities

TD Securities strategists note that Australia’s Q2 Consumer Price Index (CPI) and June headline inflation came in below expectations, easing pressure on the Reserve Bank of Australia (RBA). They highlight that trimmed mean inflation undershot the May Statement of Monetary Policy forecast and that activity, especially housing, is slowing. It expects the RBA to remain in pause-and-observe mode at the August meeting while awaiting further CPI guidance.

Lower inflation supports extended RBA pause

"Australia Q2/June CPI was lower than expected, which should reassure RBA officials that inflation pressures are kept in check. Turning to Q2 trimmed mean measure (i.e., core), which the RBA focuses on, it printed at 3.6% y/y and lower than the RBA's May Statement of Monetary Policy forecast at 3.8% y/y."

"This translates to a quarterly print of 0.81%, similar to Q1 at 0.84%. June headline CPI also printed below consensus at 3.8% y/y (consensus: 4.0%, prior: 4.0%). Housing was the largest contributor to the headline CPI in June, followed by food and recreational services."

"Activity is slowing in response to earlier hikes, especially in the housing market, and we will also get clarity on the Bank's CPI outlook from RBA's Chief Economist Hunter's fireside chat tomorrow."

"Overall, today's Q2 trimmed mean CPI print should allow RBA to be in pause and observe mode, and we expect them to stay on hold at the Aug meeting."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)