Australia Inflation: Did RBA “Tighten” Too Soon?

While many other countries are fighting off inflation worries, Australia’s relatively small amount of deficit spending means there is less price pressure.

In addition, the stronger Aussie dollar means that imported goods are cheaper, thus cutting inflation worries. And now that Australia is facing another round of economic fallout from the rise in delta variant cases, inflation could be muted for an extended period of time.

What we are looking for

Economists are anticipating the Headline CPI to show quarterly growth of 0.7%. This is a minor acceleration from the 0.6% seen in the first quarter.

Moreover, they expect the Trimmed Mean CPI (which the RBA uses to set policy) to grow at 0.5% compared to 0.3% in the first quarter. That is bang in line with the RBA’s target.

Generally, inflation’s primary impact is based on how it will affect central bank policy. However, the consensus appears that the RBA is going to stick to its schedule. At their last meeting, they insisted that lockdowns only have a transitory effect on the economy. This suggests that they won’t hesitate to continue the asset purchase reduction in September.

So, we’d have to see a significant beat or miss of expectations in order to see a major reaction in the markets from tomorrow’s data.

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