Australia also reported its monthly inflation figures this morning, Commerzbank’s FX analyst Volkmar Baur notes.
Trend in inflation is moving in the right direction
“Although only part of the price index is examined and updated monthly, this still provides an excellent early indication of the quarterly ‘full’ inflation report. With a year-on-year increase of 2.1%, inflation has now reached the lower end of the Reserve Bank of Australia’s target range, retrospectively validating the central bank’s 20 May decision to cut interest rates. The next meeting is scheduled in two weeks’ time, and I would expect another cut in the cash rate then as well.”
“Two figures in the inflation report are particularly encouraging. Firstly, inflation in service prices fell to 3.29% year-on-year, which is the lowest level in three years. Given the still tight labour market, the service sector is one of the central bank’s main concerns. The significant decline should therefore be just what the central bank needs. It could be argued that the sharp decline in package holidays contributed to this, and that this sub-component is highly susceptible to fluctuations.”
“However, the so-called ‘trimmed mean’ inflation also fell to just 2.4% year-on-year in May, its lowest level since late 2021. By definition, this calculation method excludes components susceptible to volatility. Therefore, the trend in inflation is moving in the right direction, paving the way for the next key interest rate cut on 8 July. However, the market has fully priced in this step, so it should not affect the AUD.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
