"The headline readings are certainly above expectations, the underlying readings are relatively more restrained"
- Savanth Sebastian, an economist at CommSec
Analysts and market participants pruned back the chances the Reserve Bank of Australia will make another cut to its benchmark interest rate this year, as Australian consumer prices grew more than expected in the September quarter due to a surge in fuel prices. On Wednesday the Aussie soared to the highest in a 4 1/2 month high against the greenback, reaching 0.9756 after a report from the Australian Bureau of Statistics showed the third-quarter CPI ticked up 1.2%, above analysts' predictions of a 0.8% gain and three times higher than in the previous quarter. While transport prices rose 2.4%, a sign of a stronger domestic demand came from the housing market, as property values surged 2%. However, despite upbeat quarterly data, the annual rate of inflation still lags below the RBA 2-3% target band.
With inflationary pressure below RBA target, the Governor Glenn Stevens may get ammunition to make further adjustments to the monetary policy. Earlier this month the RBA said that previous cuts are spreading through the economy with a number of indicators showing positive signs. Despite improving situation, the Aussie, which has crept up almost 7%, is still overvalued causing headaches for exporters, making domestic products less competitive globally, while Aussie's strength also adds pressure on consumer prices.
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