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With inflation rearing it's head in many commodities globally ironically Commodity powerhouse Australia Q1 inflation data came in much lower than expected. Q1 2021 Headline CPI 0.6% q/q v an expected 0.9%). Core inflation came in at the lowest reading ever. The Australian dollar sold off on the news with a cash rate hike seemingly in the distant future.

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Australian CPI for the January to March quarter of 2021.

  • Headline CPI 0.6% q/q expected 0.9% q/q, prior 0.9%
  • Headline CPI 1.1% y/y expected 1.4% y/y , prior 0.9%. The highest reading since Q1 2020,

Australia Inflation Rate

The annual inflation rate in Australia sources were from a rise in tobacco excise; resetting of the Medicare and Pharmaceutical Benefits; the introduction, continuation, and conclusion of a number of government schemes; and home building grants.

Prices increased further for:

  • Food (0.7% vs 2.3% in Q4), alcohol & tobacco (7.9% vs 9.3%), furnishings & household equipment (2.7% vs 3.6%), transport (0.4% vs -4.6%)recreation & culture (1.5% vs flat reading). education (-0.1% vs 2.1% ),  insurance & financial services (0.6% vs 1.2%). Prices of clothing & footwear were flat after falling 1.3% in Q4.

The annual food price inflation for Australia in the first quarter of 2021 came in at the lowest figure since the June quarter 2018.

  • Food inflation eased to 0.7 percent from 2.3 percent in the previous period.  Prices slowed for pork (1.9 percent vs 3.2 percent in Q4), eggs (0.9 percent vs 1.9 percent), cheese (0.1 percent vs 2 percent), dairy & related products (0.4 percent vs 1.8 percent), food products n.e.c (0.3 percent vs 2.3 percent), cakes & biscuits (0.3 percent vs -0.8 percent), and jams, honey, and spreads (1.5 percent vs 4.5 percent).
  • At the same time, cost fell for fruits & vegetables (-3.1 percent vs 3.3 percent), and other cereal products (-1.6 percent vs 5.6 percent). By contrast, prices increased faster for both oils and fats (0.7 percent vs 0.5 percent), and beef and veal (8.4 percent vs 8.1 percent).

Australia Food Inflation

Prices fell further for:

  • Housing (-1.1% vs -0.9%) and communication (-1.9% vs -2.7%).

On a quarterly basis, consumer prices went up by 0.6%, the least in three quarters, after a 0.9% gain in Q4 and below forecasts of 0.9%. 

Australia Inflation Rate QoQ

Core inflation measures: RBA core inflation target 2-3%)

  • Trimmed mean 0.3% q/q expected 0.5 % q/q, prior 0.4%
  • Trimmed mean 1.1% y/y (the lowest reading ever taken) expected 1.2% y/y, prior 1.2%

Australia Trimmed Mean Inflation Rate

  • Weighted median 0.4% q/q expected 0.5% q/q, prior 0.5%
  • Weighted Median 1.3% y/y expected 1.3% y/y, prior 1.4%

 

Australia Trimmed Mean Consumer Prices

 

Note all 3 inflation measures are under central bank expectations.

Q1 2021 core inflation indicators (trimmed mean and weighted median are both well under the lower band. The RBA have said repeatedly they do not expect their inflation nor employment goals to be met before 2024. With that the cash rate will not be hiked before these targets are met. Further to that 'base effects' from 2020 are not expected to show up in Australian CPI data until Q2. 

For more context on RBA policy and expectations see:

RBA Financial Stability Review Points To Australian Banks Strong Financial Position

The Reserve Bank of Australia's twice yearly Financial Stability Review provided no surprises. Earlier in the week the RBA held interest rates at an all time low on Tuesday to just 0.1% as widely expected. Australian banks in strong financial position coming out of pandemic banks have abundant liquidity and funding,

RBA says Australian Economic Recovery Stronger Than Expected as Holds Rates At Record Low 0.10%

The Reserve Bank of Australia held interest rates at an all time low on Tuesday to just 0.1% as widely expected. RBA remains committed to maintaining highly supportive monetary conditions until its goals are achieved. RBA later in the year will consider whether to retain April 2024 bond as target bond. Written by Corporal

Source: Australian Bureau of Statistics, TradersCommunity

From The TradersCommunity News Desk

 

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