Australia’s Consumer Price Index (CPI) rose 1.0% in the first quarter (Q1) of 2024, compared with the 0.6% increase seen in the fourth quarter, according to the latest data published by the Australian Bureau of Statistics (ABS) on Wednesday. The market consensus was for a growth of 0.8% in the reported period.
Annually, Australia’s CPI inflation fell to 3.6% in Q1 2024 from the previous print of 4.1% and above the market consensus of 3.4%.
The RBA Trimmed Mean CPI for Q1 rose 1.0% and 4.0% on a quarterly and annual basis, respectively. Markets estimated an increase of 0.8% QoQ and 3.8% YoY in the quarter to March.
The monthly Consumer Price Index inflation rose to 3.5% YoY in March versus 3.4% expected and the previous reading of 3.4% rise.
Key takeaways from the Australian CPI report
“Annual inflation for goods this quarter was 3.1 per cent. This is the sixth consecutive quarter of lower annual inflation for goods, down from the peak of 9.6 per cent in the September 2022 quarter. Annual inflation for most goods eased in the March 2024 quarter, with some goods, such as footwear, furniture, appliances and meat and seafood products seeing deflation, meaning their prices are lower compared to 12 months ago. Annual services inflation eased for the third consecutive quarter to 4.3 per cent, down from the peak of 6.3 per cent in the June 2023 quarter.”
“The Education group, which covers primary, secondary and tertiary education, recorded the largest rise since 2012. Fees are collected once a year at the beginning of the school year. The rise was driven by higher primary and secondary school fees, as well as tertiary education following the indexation of higher education course fees.”
AUD/USD reaction to Australia's Consumer Price Index data
The AUD/USD pair attracts some buyers following the hotter than expected inflation data from Australia. The pair is gaining 0.56% on the day to trade at 0.6522, at the press time.
-638495196368862317.png)
Australian Dollar price this week
The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies this week. Australian Dollar was the strongest against the Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.49% | -0.70% | -0.58% | -1.54% | 0.10% | -0.70% | 0.04% | |
| EUR | 0.48% | -0.21% | -0.10% | -1.05% | 0.59% | -0.22% | 0.52% | |
| GBP | 0.69% | 0.21% | 0.11% | -0.84% | 0.80% | -0.02% | 0.73% | |
| CAD | 0.58% | 0.11% | -0.11% | -0.94% | 0.69% | -0.12% | 0.63% | |
| AUD | 1.51% | 1.03% | 0.83% | 0.93% | 1.61% | 0.81% | 1.56% | |
| JPY | -0.10% | -0.58% | -0.82% | -0.69% | -1.64% | -0.81% | -0.06% | |
| NZD | 0.69% | 0.23% | 0.00% | 0.12% | -0.84% | 0.81% | 0.75% | |
| CHF | -0.04% | -0.53% | -0.74% | -0.63% | -1.58% | 0.06% | -0.74% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
This section below was published at 21:30 GMT as a preview of the Australian inflation data.
- The Australian Monthly Consumer Price Index is foreseen steady at 3.4% YoY in March.
- Quarterly CPI inflation is expected to have ticked higher in the first quarter of the year.
- The Reserve Bank of Australia is confident the economy would dodge a hard landing.
- The Australian Dollar is correcting higher, but is still under bears’ control.
An Australian inflation update takes the spotlight this week ahead of critical United States (US) macroeconomic data. The Australian Bureau of Statistics (ABS) will release two different inflation gauges on Wednesday. The ABS will release the quarterly Consumer Price Index (CPI) for the first quarter of 2024 and the March Monthly CPI, an annual figure that compares price pressures over the previous twelve months. Also, the quarterly report includes the Trimmed Mean Consumer Price Index, the Reserve Bank of Australia's (RBA) favorite inflation gauge.
The RBA met on March 18-19 and decided to keep the Cash Rate steady at 4.35%. In the accompanying statement, the Board scrapped references to possible rate hikes, triggering an Australian Dollar (AUD) sell-off. The central bank will meet again on May 6-7, and CPI figures will definitely guide such a decision.
What to expect from Australia’s inflation rate numbers?
The ABS is expected to report that the Monthly CPI rose by 3.4% in the year to March, matching the previous annual figure reported in February. The quarterly CPI is foreseen rising 0.8% QoQ and up 3.4% YoY in the three months to March. Finally, the RBA Trimmed Mean CPI, the central bank’s preferred gauge, is expected to rise by 3.8% YoY in March against the previous reading of 4.2%.
Market players built confidence in easing price pressures but have learned the lesson: rate cuts are not a priority for policymakers. Moreover, considering authorities from most major economies, Australia included, believe they can dodge a hard landing. However, officials involved in setting the monetary policy are more worried about trimming interest rates too early than about the impact of tight monetary conditions on the economy. An exception to this rule could be the Eurozone and the European Central Bank (ECB), but that’s a story for another moment.
Back to Australian inflation, the anticipated figures would support the RBA’s decision to hold rates and slowly pave the way for a shift in monetary policy. In the Statement on Monetary Policy released after the March meeting, policymakers stated: “Inflation is falling but is still high. It is important to bring inflation down because high inflation hurts all Australians. The Board’s interest rate decision supports the gradual return of inflation to the midpoint of our 2–3 per cent target range.”
Additionally, inflation is expected to decline to 3.2% in 2024 and continue dropping towards 2.6% by mid-2026, finally reaching the central bank’s target band of 2% to 3%. Policymakers also anticipate wage growth will peak at 4.1% in mid-2024 before gradually declining to 3.2% in June 2026. Finally, economic growth is foreseen to fall from 1.5% to 1.3% in June 2024 before gradually improving towards 2.3% by the end of 2025.
How could the Consumer Price Index report affect AUD/USD?
As usual, CPI readings will have a significant impact on the Australian Dollar (AUD) as the figures will guide the RBA's upcoming monetary policy meetings. The figures would be interpreted as how they could affect the Board's decisions. With that in mind, a higher-than-anticipated outcome would force the central bank to keep interest rates at current levels for longer. Market players do not expect higher rates, but policymakers may try to cool down expectations of soon-to-come rate cuts. Generally speaking, higher interest rates tend to provide support to the local currency. On the contrary, below-expected figures could boost rate-cut expectations, undermining demand for the Aussie.
From a wider perspective, easing inflationary pressures should be understood as better odds for economic progress and benefit the AUD in the long run.
Ahead of the CPI release, AUD/USD trades around 0.6450, recovering from 0.6360, the year-to-date low set this April. The US Dollar (USD) has soared on the back of risk aversion triggered by Middle East woes and decreasing odds for a US Federal Reserve’s (Fed) rate cut in June. The Greenback shed some ground at the start of the week, but its undeniable strength prevails.
Valeria Bednarik, FXStreet Chief Analyst, says: “The AUD/USD pair offers a limited bullish potential, according to technical readings in the daily chart. The latest recovery seems corrective, given that the pair is losing upward momentum well below bearish moving averages. Furthermore, technical indicators are developing below their midlines with neutral-to-bearish slopes, suggesting AUD/USD may soon resume its slide.”
Bednarik adds: “The pair is currently battling a relevant resistance area, followed by a stronger one at around the 0.6500 threshold. An advance towards the latter won’t affect the dominant bearish case but, on the contrary, provide sellers with fresh opportunities. Near-term support levels come at 0.6400 and 0.6360, while a break below the latter exposes the 0.6320 price zone.”
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.Foerly, old was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is nt the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
Economic Indicator
RBA Trimmed Mean CPI (YoY)
The Consumer Price Index (CPI), released by the Australian Bureau of Statistics on a quarterly basis, measures the changes in the price of a fixed basket of goods and services acquired by household consumers The YoY reading compares prices in the reference quarter to the same quarter a year earlier. The trimmed mean, which is a measure of underlying inflation, is calculated as the weighted average of the central 70% of the quarterly price change distribution of all CPI components in order to smooth the data from the more-volatile components.Generally, a high reading is seen as bullish for the Australian Dollar (AUD), while a low reading is seen as bearish.
Read more.Next release: Wed Apr 24, 2024 01:30
Frequency: Quarterly
Consensus: 3.8%
Previous: 4.2%
Source: Australian Bureau of Statistics
The quarterly Consumer Price Index (CPI) published by the Australian Bureau of Statistics (ABS) has a significant impact on the market and the AUD valuation. The gauge is closely watched by the Reserve Bank of Australia (RBA), in order to achieve its inflation mandate, which has major monetary policy implications. Rising consumer prices tend to be AUD bullish, as the RBA could hike interest rates to maintain its inflation target. The data is released nearly 25 days after the quarter ends.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD clings to gains above 1.0750 after US data
EUR/USD manages to hold in positive territory above 1.0750 despite retreating from the fresh multi-week high it set above 1.0800 earlier in the day. The US Dollar struggles to find demand following the weaker-than-expected NFP data.
GBP/USD declines below 1.2550 following NFP-inspired upsurge
GBP/USD struggles to preserve its bullish momentum and trades below 1.2550 in the American session. Earlier in the day, the disappointing April jobs report from the US triggered a USD selloff and allowed the pair to reach multi-week highs above 1.2600.
Gold struggles to hold above $2,300 despite falling US yields
Gold stays on the back foot below $2,300 in the American session on Friday. The benchmark 10-year US Treasury bond yield stays in negative territory below 4.6% after weak US data but the improving risk mood doesn't allow XAU/USD to gain traction.
Bitcoin Weekly Forecast: Should you buy BTC here? Premium
Bitcoin (BTC) price shows signs of a potential reversal but lacks confirmation, which has divided the investor community into two – those who are buying the dips and those who are expecting a further correction.
Week ahead – BoE and RBA decisions headline a calm week
Bank of England meets on Thursday, unlikely to signal rate cuts. Reserve Bank of Australia could maintain a higher-for-longer stance. Elsewhere, Bank of Japan releases summary of opinions.