Australia: Inflation accelerates in Q2, driving up the AUD
In the second quarter of 2019, consumer prices jumped 0.6% over the previous quarter following a flat reading in the first quarter, according to the Australian Bureau of Statistics (ABS). The figure beat market expectations of a 0.5% quarter-on-quarter increase and marked the highest print in one-and-a-half years. According to the ABS, Q2’s rise was mainly the result of higher prices for transport, health, and for alcohol and tobacco, which were only partially offset by lower prices for communication, housing and food and non-alcoholic beverages.
Inflation rose to 1.6% in Q2 from Q1’s 1.3%, again overshooting market expectations. Therefore, inflation moved closer to the Reserve Bank’s 2.0%–3.0% target band. Regional variations persisted: Inflation came in between 1.3% and 1.7% everywhere excluding Hobart, where it exceeded 2.0%, and Darwin, where it was 0.8%.
Some pick-up in wage growth and early signs of bottoming out in house prices in the East coast will probably push inflation up. Markets reacted by driving the Australian dollar up, as they pared expectations for a rate cut at the Reserve Bank’s August meeting.