October 27, 2021

Surprise for RBA, Australian Inflation Soars High!

 The Aussie dollar rose higher in the Asian session today after being shown by a stronger reading of Australian inflation data in the third quarter.

According to data released by the Australian Bureau of Statistics, the key consumer price index (CPI) rose 0.8% in the third quarter and 3.0% on an annual basis, similar to market expectations.

However, the average measure of core inflation which is an indicator to the Central Bank of Australia (RBA) rose 0.7% during the quarter, better than the projection for a 0.5% increase.

The annual rate rose to 2.1%, well above the expected 1.8% and put it back in the RBA’s 2-3% target range for the first time in six years.

The increase was largely influenced by higher petrol prices (7.1%) and the cost of purchasing new homes (3.3%).

Earlier, the central bank had predicted core inflation would not reach 2% until mid -2023, and subsequently interest rates would remain at a low of 0.1% until 2024.

These latest stronger figures boost back market optimism for the RBA to implement an earlier tightening that is likely to begin by July next year.

This data reading not only pushed the Aussie dollar higher, but also drove Australia’s 3 -year bond yield to its highest level since January 2020 following the publication of this data.