"The inflation data certainly surprised to the upside and suggests that the next rate move is going to be up"
- Matthew Circosta, economist at Moody's Analytics
The Australian Dollar remains at the "uncomfortably high" level, while domestic economy is struggling to build up steam amid waning investment in the mining sector. Therefore, analysts claimed that another rate cut from the RBA is inevitable and, hence, the easing cycle is not over yet. Wednesday's report, however, reduces scope for the central bank to lower borrowing costs further, as inflation unexpectedly accelerated above the mid-point of the RBA target range in fourth quarter of 2013.
According to the Australian Bureau of Statistics, consumer prices advanced 0.8% over the October-December period, following a 1.2% gain in the previous quarter and beating analysts' forecasts for a 0.4% increase. On a yearly basis, CPI rose 2.7%, moving much closer to the top end of the RBA 2-3% inflation range. The main upside pressure came from food and alcohol prices, which posted a 1.6% increase. In contrast, apparel and health care prices fell 1.1% and 0.5% respectively.
The Aussie together with the Japanese Yen were the worst performing major currencies last quarter. While, the RBA cut its key refinancing rate by 2.25% since late 2011, traders pared their bets Glenn Stevens and his team will make another adjustment during the next policy meeting.
© Dukascopy Bank SA