(Bloomberg) — Australia’s core inflation cooled in the three months through June, strengthening the case for the Reserve Bank to ease monetary policy as early as August on signs of abating price pressures.
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The closely-watched trimmed mean gauge of consumer prices, which shaves off volatile items, advanced 0.6% in the second quarter from three months earlier, weaker than the 0.7% forecast, data from the Australian Bureau of Statistics showed Wednesday. On an annual basis, it rose 2.7%, matching forecasts and down from 2.9% in the first quarter.
The RBA focuses on core inflation because government rebates are suppressing the headline reading, muddying its view of price pressures across the economy. A further easing in the annual figure, which only slipped inside the RBA’s 2-3% target band in the first quarter, suggests policy makers can now shift their focus away from inflation and toward supporting economic growth.
The Australian dollar erased an earlier gain while the yield on policy-sensitive three-year bonds extended a decline as traders fully priced bets for an RBA rate cut next month. Stocks gained.
Today’s data is “consistent with monetary policy no longer needing to be restrictive,” said Luci Ellis, chief economist at Westpac Banking Corp, predicting a 25-basis-point cut at the RBA’s Aug. 11-12 meeting. “We suspect that today’s data will come as something of a relief to the RBA.”
The central bank has eased twice in the current cycle, bringing the cash rate to 3.85%. It wrong-footed investors earlier this month by keeping borrowing costs unchanged against widespread expectations for a cut.
Economists anticipate three more rate reductions between now and early 2026, according to the median estimate in a Bloomberg survey, with some citing recent weakness in the job market among causes for concern. Data earlier this month showed Australia’s unemployment rate unexpectedly rose to a four-year high of 4.3% in June, from 4.1% the prior month.
Following the employment figures, Governor Michele Bullock said last week that the jobless rate was in line with the RBA’s May forecasts. She added that the monetary policy board believes a “measured and gradual” approach to easing is appropriate.
Market players will be tuning in for the RBA’s take on today’s inflation report when Deputy Governor Andrew Hauser speaks at a “fireside chat” event in Sydney on Thursday.