Inflation In Australia Declines: What Market Players Need To Know

inflation

The inflation in the Australian economy has been declined even though the fuel prices have remained elevated. The consumer price index or CPI witnessed the rise of 0.4% in the September 2018 quarter. However, over the year it rose by 1.9%. This reflects the subdued growth in regard to the inflation as earlier there has been a rise of 2.1%. Over the year, the underlying inflation has witnessed the fall and stood at 1.6%, a level which has not been witnessed since early 2017. The underlying inflation does not consider the volatile items like fuel as well as food.

According to the Australian Bureau of Statistics or ABS, a substantial rise was witnessed in international holiday travel as well as accommodation, property rates, and charges, tobacco, fruit as well as automotive fuel. However, these increases got partially offset by the decline in the telecommunications equipment and services as well as childcare. As per the key official of ABS, a marginal rise in the housing costs which includes utilities, rents as well as property rates along with a decline in the child care out-of-pocket expenses were the primary reasons for the subdued growth with respect to the CPI in the September quarter. [optin-monster-shortcode id=”swikrbu1d9j9aq0o4cko”]

However, the effect of the increased fuel prices was felt during the end of the quarter. The fuel prices fell in the month of July and rose substantially in the month of September 2018. The inflation numbers in Australia saw a downtrend also because of the decline in wage growth.

Will Australia’s Central Bank Go for a Rate Cut?

The apex bank of Australia, Reserve Bank of Australia, is expected to hold the current cash rate target i.e. at 1.5% in the November meeting. The primary reasons that the apex bank might be dovish are the increased regulatory pressures impacting the broader banking sector as well as a substantial fall in the housing prices. On the other hand, the US Federal Reserve is bullish on the US economy and might consider raising the interest rates moving forward. The US economy is strengthening primarily because of the Trump administration’s economic policies. This is the primary reason that the US president criticizes the Federal Reserve’s decision of raising the interest rates. Higher rates generally limit the borrowing capacity which would, in turn, lead to lower spending among the businesses as well as retail consumers.

The Australian economy is also exposed to the risks that may arise because of increased tensions between the US and China. Additionally, the United States is considering to slap more tariffs on the Chinese imports if the scheduled talks do not end on a positive note. Notably, the talks are scheduled in November 2018. The downturn in the Chinese economy is not at all good for the Australian economy as China is trading partner of Australia. The manufacturing activity in China has been witnessing the adverse effects.

However, the disappointing earnings season has severely impacted the US markets and hence, the impact was also felt on the global markets. Some market trackers view that this might prompt the Federal Reserve to think twice before raising the rates.


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