(Bloomberg) — Australia’s core inflation remained elevated last quarter, reinforcing the Reserve Bank’s view that price pressures will take time to dissipate and that monetary policy needs to stay restrictive for the time being.
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The trimmed mean measure of consumer prices, which smooths out volatile items, rose 0.8% in the three months through September, matching estimates, data from the Australian Bureau of Statistics showed Wednesday. On an annual basis, the trimmed mean climbed 3.5%, also in line with forecasts. The RBA is focused on core CPI as government subsidies are suppressing headline prices.
The currency and policy sensitive three-year government bonds were little changed following the release.
The numbers are broadly in line with the RBA’s inflation outlook. Governor Michele Bullock said in the bank’s annual report released last week that she anticipates it will take “another year or two” before consumer prices are sustainably back within the 2-3% target. The RBA will release a new round of economic forecasts on Tuesday together with its policy decision.
The result “should reinforce the RBA’s existing view that inflation won’t be sustainably inside the target band for a while yet, suggesting limited changes in its quarterly forecasts next week,” said Sean Callow, senior FX analyst at In-Touch Capital Markets.
The slow pace of disinflation reflects Australia’s lower interest rate peak than international counterparts as the RBA worried about the capacity of heavily-indebted households to meet significantly higher mortgage repayments. The central bank has held its key rate at a 12-year high of 4.35% since last November and most economists don’t expect a cut before February 2025.
RBA policymakers have said they’re alert to upside risks to prices from potentially higher consumer spending following government income tax cuts that began in July, as well as from global geopolitical and trade tensions. They have repeatedly said that aggregate demand still exceeds the economy’s supply capacity.
It’s still unclear whether households are saving or spending the extra cash but if they are consuming then economists fear that inflation’s return to target may be even slower than expected. Retail sales data on Thursday will provide some guidance on demand in the economy.