Australia’s Consumer Price Index Update
The Australian Bureau of Statistics (ABS) released new data on Wednesday showing that the consumer price index (CPI) in Australia increased by 4.0% year-on-year in May, a bit below the previously reported 4.2% rise.
Expectations in the market were slightly higher, with a consensus forecast of 4.4% growth during this timeframe.
On a monthly basis, the CPI for May saw a decrease of 0.7%, contrasting the prior month’s increase of 0.4% and falling short of the anticipated 0.3% decline. Additionally, the RBA-trimmed average CPI rose by 0.4% from the month before, and 3.6% on an annual basis.
AUD/USD Response to CPI Data
In reaction to this CPI report, the Australian dollar (AUD) experienced a slight uptick. The AUD/USD pair increased by 0.08% on the day and was trading at 0.6922 at the time of this report.
What to Expect from Australian Inflation Data
The annual CPI in Australia was expected to rise to 4.4% in May from 4.2% in April, approaching the nearly three-year high of 4.6% recorded in March. For the same period, a monthly decrease of 0.3% was predicted, following prior growth of 0.4%.
It was anticipated that the average CPI-trimmed inflation rate would see a slight increase from 3.4% to 3.5% year-on-year, while the month-on-month figure was expected to remain stable at 0.3%.
This CPI release came after the Reserve Bank of Australia (RBA) held the Official Cash Rate steady at 4.35% last week, pausing after three consecutive interest rate hikes since the year’s start.
The RBA noted its focus on preventing inflation from escalating once the impact of rising oil prices subsides. They also mentioned their commitment to monitoring data and reassessing projections and risks to inform future decisions.
With geopolitical tensions slightly easing, following a peace deal between the United States and Iran, and a notable drop in oil prices, this could help reduce inflationary pressures in Australia going forward.
The disparity between the monthly and annual CPI figures might be explained by a roughly 12% drop in fuel prices during the same month, influenced by decreasing global oil prices and an approaching expiry of a domestic fuel excise tax cut.
Meanwhile, rising housing costs and rental prices are expected to drive housing inflation upwards.
However, the trimmed average statistics will be carefully observed to determine whether the effects from disturbances in energy markets are impacting the wider services and housing sectors.
Potential Impact of the CPI Report on AUD/USD
Heading towards this inflation report, the AUD/USD pair remained below 0.7000. Buyers seemed to be waiting for a surprise uptick in annual and monthly trimmed average CPI data to support the AUD.
While headlines suggested softening due to falling fuel costs, underlying inflation remains high, prompting the RBA to stay vigilant about potential rate increases.
If inflation pressures in Australia lessen, it could alter expectations for future rate hikes from the RBA, which would likely place downward pressure on the Australian dollar.
