Inflation rose by a more-than-expected 0.5 per cent in the December quarter, but the Reserve Bank is unlikely to change its thinking on the cash rate in near future.
Inflation for the three months to December 31 beat market expectations of a second straight 0.4 per cent rise, but the consumer price index slowed slightly to 1.8 per cent for the year.
That was down from 1.9 per cent in the previous quarter, figures from the Australian Bureau of Statistics on Wednesday showed, below the two per cent floor of the RBA’s target band.
“While this report does suggest we have at least found a bottom in the disinflationary pulse, it is still too early to call an inflationary pulse is underway and there are some hints in the December 2018 report that the current scenario has much longer to run,” Westpac senior economist Justin Smirk said.
The Australian dollar jumped about half a US cent following the data’s release, but economists suggested the Reserve Bank is still unlikely to raise the cash rate from its all-time low 1.5 per cent any time soon.
RBC Capital Markets’ head of Australian and New Zealand FIC strategy Su-Lin Ong said the RBA would likely trim its 2019 inflation forecast by 0.25 percentage points to 2.0 per cent in next week’s Statement on Monetary Policy.
“While the stabilisation in core inflation is welcomed, a more sustained pick up remains challenging amid ongoing labour market slack, competitive pressures and disruption, and structural headwinds to wages growth,” Ms Ong said.
“Such a move would imply an RBA on hold for longer than our base case but would also suggest limited scope for rate cuts.”
Some observers had previously tipped a cut toward the end of this calendar year, and Capital Economics economist Marcel Thieliant on Wednesday forecast an eventual cut to 1.0 per cent.
The most significant rise in costs was tobacco’s 9.4 per cent increase, while domestic holiday travel and accommodation prices rose 6.2 per cent, and fruit jumped 5.0 per cent.
Fuel fell 2.5 per cent on big November and December price cuts, while audio visual and computing equipment became 3.3 per cent cheaper, and wine prices decreased 1.9 per cent.
The Australian dollar jumped from 71.50 US cents to as much as 71.96 US cents following the data’s release, and was still worth 71.94 at 1430 AEDT.