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Australia Inflation Q1 2019

Australia: Inflation slumps to two-and-a-half-year low in Q1, driving down the AUD

In the first quarter of 2019, consumer prices remained unchanged over the previous quarter, according to the Australian Bureau of Statistics (ABS). The figure came short of market expectations and below the 0.5% quarter-on-quarter increase recorded in the previous quarter. According to the ABS, Q1’s print was mainly the result of higher prices for education, health, and for food and non-alcoholic beverages, which were offset by lower prices for clothing and footwear, transport, and recreation and culture.

Inflation sunk to 1.3% in Q1 from Q4’s 1.8%, again undershooting market expectations. It was the lowest reading since Q3 2016 and moved further below the Reserve Bank’s 2.0%–3.0% target band. Regional variations persisted, although differences were less pronounced than in previous quarters: Inflation came in between 1.1% and 1.5% everywhere excluding Hobart, where it exceeded 2.0%, and Darwin, where it was 0.4%.

Moderate wage growth and an ongoing correction in house prices in the East coast likely continued to keep inflation in check. Markets reacted by driving the Australian dollar down, as the soft inflation reading increases the likelihood that the Central Bank will cut rates in the near-term.

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