Australian inflation eased to a 17-year low in April-June, official figures showed yesterday, raising the prospects of another interest rate cut to shore up the economy.
Borrowing costs are already at a record-low of 1.75% and economists said they could fall further after the consumer price index rose 1% year-on-year, the weakest level since the June quarter of 1999.
It was also well off the Reserve Bank of Australia’s target of 2%-3%.
The 0.4% on-quarter reading, however, matched market expectations and was stronger than in the January-March period, where prices fell 0.2% – the first drop since 2008.
Australia has been growing stronger than most of the world’s most advanced economies, but like most countries it is struggling to kickstart inflation, with oil prices subdued and global trade tepid.
“Quite clearly, deflationary pressures globally are continuing to be imported to Australia, and intense competition domestically and historically weak wages growth are keeping price pressures low and inflation below target,” AMP Capital chief economist Shane Oliver said.
Underlying, or core inflation, which strips out volatile items and is more closely watched by the central bank, came in at 0.45% on-quarter and 1.5% annually.
Australia’s economy has been charting a rocky path after exiting an unprecedented period of mining investment, with weak wages growth and non-mining industries failing to fill the gap left by the resources sector
But analysts said overall growth expectations remained healthy and an August rate cut was not a definite. “Inflation is clearly low enough to allow them to cut (rates), but... the data release is not screaming at the RBA to loosen policy again,” HSBC Australia economists said in a note.