SYDNEY: A pick-up in core consumer prices in Australia has reduced the likelihood of a near-term interest rate cut, even as official statistics showed Wednesday that plunging oil prices slowed inflation in the last three months of 2014.
The Consumer Price Index (CPI) rose 0.2 percent from the previous quarter and 1.7 percent through the year to December, the Australian Bureau of Statistics said. That compares with 0.5 percent and 2.3 percent in the previous three months.
However core inflation, which strips out volatile items and is more closely watched by the Reserve Bank, came in at 0.7 for the quarter and 2.2 percent through the year inside the central bank’s preferred range of 2.0-3.0 percent.
The core inflation figure, which was stronger-than-expected, sent the Australian dollar rallying to 79.79 US cents from around 79 cents before the announcement.
The bureau said price rises in areas such as domestic holiday travel, which rose 5.8 percent, and tobacco (up 4.8 percent) were partially offset by a fall in petrol prices (down 6.8 percent).
Global crude costs have plunged more than 50 percent to near six-year lows since June owing to weak demand and a supply glut.
The Reserve Bank of Australia has kept interest rates on hold since August 2013 when it lowered its official cash rate to the historic low of 2.5 percent.
Economists said the latest data suggested a rate cut at the RBA’s board meeting next Tuesday to spur the economy was unlikely.
“There’s not any evidence from CPI that would add to the case for a near term change in policy,” National Australia Bank senior economist David de Garis said.
And CommSec chief economist Craig James said there was no “smoking gun” in the figures to demand a rate cut.
“The RBA has got to be looking much more in terms of internal price pressures, pressures that the economy is generating, and the major reason why inflation was on the low side was external influences that may not always be there,” James said.
“There’s no smoking gun in the inflation figures to suggest the RBA can cut interest rates.”
James said the bank could change its bias from neutral to easing “because we do still have underlying inflation at the low end of the RBA’s target band”.