Australian consumer price index (CPI) rose by 0.7% in Q3 2016, surpassing the analysts and market estimates. The strong growth of the inflation on quarterly basis accelerated in the third quarter and sent the Australian dollar sharply higher, with the AUD/USD exchange rate climbing 0.7%. The annual inflation also performed better-than-expected and grew to 1.3% in Q3 2016, against 1.0% during the previous quarter.
The Australian economy is performing stronger, but most of the market analysts do not believe the Reserve Bank of Australia (RBA) to cut interest rates anytime soon. The RBA’s last rate cut took place in August, when the overnight rate was decreased to a new record low level of 1.5%. The next meeting of RBA is scheduled for November 1.
The annual inflation in Australia is following the downtrend for last three years. The monetary policymakers fear from the weak inflation, as it often signals subdued demand, delaying the economics development of the country and reducing the spending of the households and discourage businesses from investments. The Australian consumer inflation expectations improved in October for the first time in three months, which is an early sign that RBA’s policy is beginning to stimulate the price growth.
However, easing job growth along with the slowdown in private lending may drag on the headline as well as the core rate of inflation, and a dismal development may curb the appeal of the higher-yielding currency as it fuels bets for lower borrowing-costs.
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