A private gauge of Australian inflation braked to the slowest pace in two-and-a-half years in December as petrol prices plunged, suggesting there was expanding scope for another cut in interest rates if needed to support the economy. The TD Securities-Melbourne Institute’s monthly measure of consumer prices was unchanged in December from November, when it edged up by 0.1 percent.
December is normally a strong month for prices but this time a steep fall in petrol kept inflation restrained. The annual pace slowed sharply to 1.5 percent, from 2.2 percent in November. That was the lowest reading since July 2012. Importantly for monetary policy, measures of underlying inflation also showed a marked moderation in price pressures, with the trimmed mean up just 1.7 percent on a year earlier and down from 2.4 percent in November.
The Reserve Bank of Australia (RBA) focuses on underlying inflation when setting interest rates, aiming to keep it in a range of 2 to 3 percent over the long run. The slowdown in the TDMI figures will thus only add to market speculation about a cut in the current 2.5 percent cash rate. Interbank futures <0#YIB:> are fully priced for a move by May, though they imply only a slight chance of an easing at the RBA’s next policy meeting on Feb. 3.
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