AUD: Persistent CPI supports additional RBA rate increase – TD Securities

Australian Inflation Persists, Keeping RBA in Focus

The Global Strategy Team at TD Securities notes that Australia’s Consumer Price Index (CPI) for January remained higher than anticipated, with both the headline and core (trimmed mean) inflation figures surpassing market expectations. The analysis points out that persistent cost increases, especially in housing and electricity, are maintaining upward pressure on prices, although there was some relief in recreational and transportation categories.

Inflation Data Surpasses Forecasts

According to the team, headline inflation in January held steady at 3.8% year-over-year, slightly above the consensus estimate of 3.7%. Core inflation also inched up to 3.4% year-over-year, compared to the expected 3.3%.

On a seasonally adjusted monthly basis, the headline CPI rose by 0.5%, accelerating from the 0.2% monthly increases recorded in the previous two months.

Key Drivers Behind Price Increases

The main contributors to the uptick were housing-related expenses, particularly due to higher electricity costs following the expiration of government rebates. Both new home prices and rental rates saw faster growth in January.

In contrast, the report highlights that prices for recreational activities and transportation declined, offering some positive news within the inflation data.

Outlook for RBA Policy

Overall, the January figures indicate that inflationary pressures remain persistent, suggesting the Reserve Bank of Australia (RBA) may need to implement another interest rate increase. The strategists believe that May could present the next significant window for the RBA to act, as they continue to monitor economic developments.