Australian Consumer Price Index meets estimates with 5.2% YoY in August

The official data published by the Australian Bureau of Statistics (ABS) showed on Wednesday that Australia’s monthly Consumer Price Index (CPI) rose 5.2% in the year to August 2023, compared with the annual increase of 4.9% seen in July.

The market forecast was for a 5.2% increase in the reported period.

Key takeaways

“The most significant price rises were Housing (+6.6%), Transport (+7.4%), Food and non-alcoholic beverages (+4.4%) and Insurance and financial services (+8.8%).”

“The annual movement for the monthly CPI indicator excluding volatile items and holiday travel rose 5.5% in August, down from the rise of 5.8% in July.”

“Annual trimmed mean inflation was 5.6% in August, in line with the rise of 5.6% in July.”

AUD/USD reaction to the monthly Consumer Price Index data

The AUD/USD recovery mode remained intact on hot Australian inflation data, which keeps expectations alive for more rate hikes by the Reserve Bank of Australia (RBA). The pair is adding 0.15% on the day to trade at 0.6405, at the press time.

15-minutes chart

Australian Dollar price today

The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies today. Australian Dollar was the strongest against the US Dollar.

USD   0.01% -0.05% -0.11% -0.22% -0.05% -0.12% 0.00%
EUR -0.02%   -0.07% -0.13% -0.20% -0.06% -0.13% -0.01%
GBP 0.05% 0.07%   -0.06% -0.13% 0.02% -0.06% 0.06%
CAD 0.11% 0.13% 0.06%   -0.07% 0.08% 0.00% 0.13%
AUD 0.20% 0.20% 0.12% 0.07%   0.14% 0.07% 0.20%
JPY 0.04% 0.06% -0.01% -0.06% -0.10%   -0.08% 0.05%
NZD 0.12% 0.13% 0.06% 0.01% -0.09% 0.07%   0.12%
CHF -0.01% 0.01% -0.06% -0.12% -0.18% -0.05% -0.12%  

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 22:30 GMT as a preview of the Australian inflation data.

  • The Australian Monthly Consumer Price Index is forecast to rise 5.2% YoY in August, up from the 4.9% increase recorded in July.
  • CPI inflation is expected to show its first reacceleration since April.
  • Soaring petrol prices in Australia are likely to push inflation higher.

The Australian Monthly Consumer Price Index (CPI) inflation data for August will be published by the Australian Bureau of Statistics (ABS) on Wednesday at 01:30 GMT. The data could be critical for the Australian Dollar (AUD) and the Reserve Bank of Australia (RBA), which will hold its October monetary policy meeting next week. 

Inflation in Australia (AU) peaked in December 2022, when the Monthly CPI showed an 8.4% year-on-year increase. Since then, it has been trending lower, with only a rebound observed in April. Last month, the inflation number surprised with a lower-than-expected reading, reinforcing the expectation that the RBA would maintain interest rates unchanged in September as it did. Another soft reading looks unlikely in August as petrol prices have risen considerably, leading experts to anticipate a potential reacceleration in inflation.

What to expect from Australia’s August inflation rate?

A rebound in the inflation rate in Australia in August could increase the expectation of another rate hike from the RBA, although not necessarily at the upcoming meeting next week. The quarterly Consumer Price Index remains the most important measure of household inflation. Since the monthly data is derived from the available data from the quarterly CPI, a rebound in August is likely to anticipate a hotter Q3 CPI reading, which will be released on October 25.

The market does not favor a rate hike at the October 3 meeting, which will be Michele Bullock's first meeting as a Governor. The expectation for a rate hike increases for the November and December meetings. According to Bloomberg's World Interest Rate Probability (WIRP), the odds of another rate hike rise to 85% for the first quarter of next year. Interest rate futures indicate that the market expects the cash rate to peak around 4.55% in the first quarter of 2024, higher than the current 4.10%.

An analyst at TD Securities explained that a significant upside surprise in the monthly CPI “adds scrutiny to the Q3 CPI printout in late October. “We can't discount the odds of an insurance hike in November, especially given the risk of an inflation resurgence after the march higher in commodity and energy prices.”

If the Consumer Price Index shows inflation not slowing down and, on the contrary, accelerating further above the 2%-3% target range, the Australian Dollar could receive a boost as markets would consider further tightening ahead. However, if the Monthly CPI comes in below expectations, it could hurt the Australian Dollar, but it will be positive news for the Australian economy.

When will the Monthly Consumer Price Index report be released, and how could it affect AUD/USD?

The Monthly Consumer Price Index inflation data for August is scheduled to be published at 01:30 GMT on Wednesday. Since August, the AUD/USD pair has been trading within a range between 0.6500 and 0.6350, reaching the lowest levels of the year. The pair's decline can be attributed not only to a weaker Australian Dollar but mainly to a stronger US Dollar driven by higher Treasury yields and the strong performance of the US economy. The CPI figures could have a limited impact on the pair, particularly if they come in line with expectations. A significant surprise in the data may be required for the AUD/USD to approach the limits of the current range or even break out of it.

Expectations of another rate hike from the RBA could potentially boost the AUD/USD pair in the near term. However, it is unclear how long-lasting the impact would be. The combination of higher inflation and monetary tightening at a time when the economy is facing challenges may limit the upside potential for the Australian Dollar and could ultimately have a negative impact.

The AUD/USD pair is following a bearish trend, finding support around the 0.6350 area, while the rebound has been limited around the 0.6500 area. The future direction of the pair largely depends on a consolidation outside of these two levels. A convincing break above 0.6500 could open the doors to a more sustainable appreciation, but it would likely require improvements in economic data and a positive outlook for China.

On the contrary, negative market sentiment and a worsening economic outlook could continue to put pressure on the pair around 0.6350, and a break below this level could lead to a downward acceleration, targeting 0.6300. The next medium-term support level stands at the 0.6260 zone.

Economic Indicator

Australia Consumer Price Index (YoY)

The Consumer Price Index released by the RBA and republished by the Australian Bureau of Statistics is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services . The purchase power of AUD is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. A high reading is seen as positive (or bullish) for the AUD, while a low reading is seen as negative (or Bearish).

Read more.

Next release: 10/25/2023 00:30:00 GMT

Frequency: Quarterly

Source: Australian Bureau of Statistics

Why it matters to traders

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.

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