Aus­tralian core in­fla­tion eases in­ter­est rate cut pres­sure


A pick-up in core con­sumer prices in Aus­tralia has re­duced the like­li­hood of a near-term in­ter­est rate cut, even as of­fi­cial statis­tics showed Wed­nes­day that plung­ing oil prices slowed in­fla­tion in the last three months of 2014.

The Con­sumer Price In­dex (CPI) rose 0.2 per­cent from the pre­vi­ous quar­ter and 1.7 per­cent through the year to De­cem­ber, the Aus­tralian Bureau of Statis­tics said. That com­pares with 0.5 per­cent and 2.3 per­cent in the pre­vi­ous three months.

How­ever core in­fla­tion, which strips out volatile items and is more closely watched by the Re­serve Bank, came in at 0.7 for the quar­ter and 2.2 per­cent through the year -- inside the cen­tral bank s pre­ferred range of 2.0-3.0 per­cent.

The core in­fla­tion fig­ure, which was stronger-than-ex­pected, sent the Aus­tralian dol­lar ral­ly­ing to 79.79 US cents from around 79 cents be­fore the an­nounce­ment.

The bureau said price rises in ar­eas such as do­mes­tic hol­i­day travel, which rose 5.8 per­cent, and to­bacco (up 4.8 per­cent) were par­tially off­set by a fall in petrol prices (down 6.8 per­cent). Global crude costs have plunged more than 50 per­cent to near six-year lows since June owing to weak de­mand and a sup­ply glut.

The Re­serve Bank of Aus­tralia has kept in­ter­est rates on hold since Au­gust 2013 when it low­ered its of­fi­cial cash rate to the his­toric low of 2.5 per­cent.

Econ­o­mists said the lat­est data sug­gested a rate cut at the RBA s board meet­ing next Tues­day to spur the econ­omy was un­likely.

"There s not any ev­i­dence from CPI that would add to the case for a near-term change in pol­icy," Na­tional Aus­tralia Bank se­nior economist David de Garis said. And Com­mSec chief economist Craig James said there was no "smoking gun" in the fig­ures to de­mand a rate cut.

"The RBA has got to be look­ing much more in terms of in­ter­nal price pres­sures, pres­sures that the econ­omy is gen­er­at­ing, and the ma­jor rea­son why in­fla­tion was on the low side was ex­ter­nal in­flu­ences that may not al­ways be there," James said.

"There s no smoking gun in the in­fla­tion fig­ures to sug­gest the RBA can cut in­ter­est rates." James said the bank could change its bias from neu­tral to eas­ing "be­cause we do still have un­der­ly­ing in­fla­tion at the low end of the RBA s tar­get band". ANZ bank said the fig­ures would dis­ap­point mar­ket ex­pec­ta­tions of a Fe­bru­ary rate cut.

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