-Savanth Sebastian, an economist at a unit of Commonwealth Bank of Australia
We should definitely forget about the rate hike from the RBA. Despite neutral or even slightly hawkish bias from Australian central bank in the recent weeks, the latest inflation report is diminishing any hopes for a tightening of the monetary policy any time soon.
The Australian Bureau of Statistics said that the cost of living in Australia climbed only 0.6% in the first quarter of this year, slowing from 0.8% three months earlier and missing analysts' expectations for a no change. The main upside pressure came from tobacco and automotive fuel prices, which advanced 6.7% and 4.1%, respectively. In contrast, these rises were offset by a 4.3% drop in furniture and a 3.3% decline in maintenance and repair of motor vehicles. On a annual basis CPI posted a 2.9% gain, in the March quarter, accelerating from the growth of 2.7% seen in February. Furthermore, a core measure, which excludes the most volatile prices, advanced only 0.5% from the previous quarter, disappointing markets. These figures should damp speculations that heating housing market and falling unemployment will spur the RBA to raise the key refinancing rate from the current, record-low level of 2.5%. Moreover, they provides a scope for the RBA to extend a period of stable interest rates.
Following the report the Aussie plunged 0.5% versus the American counterpart, with the pair reaching 0.9325.
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