MNI BRIEF: Softer CPI Gives RBA Space For Additional Pause

The lower-than-expected consumer price inflation levels for the March quarter could give the Reserve Bank of Australia room for another pause to interest-rate hikes when it meets on May 2.

Australian CPI for the March quarter printed below market expectations, with trimmed mean CPI rising 1.2% q/q compared to the expected 1.4% and the weighted median rising 5.8% y/y over the estimated 5.9%, according to data released by the Australian Bureau of Statistics Wednesday. Annual CPI printed at 7%, above the 6.9% expected by the market, but down from the December quarter’s 30 year high of 7.8%.

The softer than expected data sent ACGBs higher (see: Richer After Core CPI Prints Lower Than Expected) and the overnight index swap rate priced in a lower chance of a rate hike at the next meeting (see table).

Housing recorded a 9.8% y/y increase in the March quarter and a 1.9 q/q change. The worsening rental situation will play on the RBA’s decision, which is currently debating the effectiveness of monetary policy on the housing market (see: MNI POLICY: RBA Ponders How To Respond To Rental Inflation).