Australian Inflation Data Causes Headache for RBA

A surprise spike in Australia’s inflation rate will give the nation’s central bankers pause for thought, analysts say, making it trickier to decide between keeping rates low to stimulate the economy and raising rates to pour cold water on frothy price rises.

Consumer prices rose 0.8 percent in the fourth quarter of 2013, taking annual inflation to 2.7 percent, at the upper end of the Reserve Bank of Australia’s target of between 2 and 3 percent. Sharp increases in the price of fruit and vegetables, travel costs and tobacco were behind the overall increase.

Australian stocks slipped 0.7 percent on the news, while the Australian dollar strengthened to $0.8855 against the dollar, retreating from Monday’s three-and-a-half-year low. The 15 percent fall in the Aussie over the past year has been a key factor behind rising prices, increasing the cost of imports.

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