AUD: Australia’s falling inflation is likely to sustain? – HSBC

By FXStreet FXStreet (DelhI) – Research Team at HSBC, notes that the Australia’s CPI inflation has surprised on the downside, with the RBA’s preferred underlying measures running at their lowest rate since 1997 in quarterly terms in the third quarter.

Key Quotes

“Over the past year, the underlying measures have averaged 2.2%. Given the very weak third quarter result, the y-o-y rate of underlying inflation is likely to skirt the bottom edge of the RBA’s 2-3% target band in coming quarters.

“The AUD had also stayed stubbornly high, weighing on inflation. Although the AUD has now fallen and is lifting imported goods prices, the compression of local retail margins has kept CPI inflation weak. The domestic economy has also been operating with spare capacity for some time, with the unemployment rate well above its full employment level. This has dampened wages growth and kept domestic prices pressures at bay.”

“At the same time, the timely indicators show that growth is lifting, as the economy rebalances away from mining-led growth towards the housing and services sectors. Business conditions and jobs growth have picked up. History suggests that this should generate some wage pressures and domestic inflation over time, if it persists.”

“Although low inflation gives the RBA …read more

Source:: FX Street