Australian inflation stays low but it may not be enough to see the RBA cut rates

Australia's price level grew at the weakest rate in 17 years in the June quarter, increasing speculation that the RBA will cut interest rates at next week's meeting. Australian consumer prices rose 0.4% over the April-June period, according to the Australian Bureau of Statistics, taking the annual change in inflation down from 1.3% to 1.0%, the lowest in 17 years. Meanwhile, analysts expected headline inflation to slow to 1.2% last quarter. Core inflation, the focus of financial markets given its influence over the outlook for Australian interest rates, increased by 0.45%, the ABS reported, that is slightly above expectations for a gain of 0.4%. Health care, clothing, housing, transport, and insurance all contributed to the rise in Australia's CPI last quarter, while food, communication, and recreation cost less in the June quarter. According to the ABS, the most significant price rises were for medical and hospital services (+4.2%), automotive fuel (+5.9%) and tobacco (+2.1%), partially offsetting declines in domestic holiday travel and accommodation (–3.7%), motor vehicles (–1.3%) and telecommunication equipment and services (–1.5%). Following the release of the report, financial markets have wasted no time in pricing out the likelihood that the Reserve Bank of Australia will cut interest rates when it meets on August 2.