Australian Dollar: Softer CPI backs RBA pause – Commerzbank

Commerzbank’s Volkmar Baur contrasts the Reserve Bank of Australia (RBA) with the Reserve Bank of New Zealand (RBNZ), noting Australia has already hiked three times and that April Consumer Price Index (CPI), including a monthly fall and lower annual rate, supports a pause. While trimmed-mean inflation is a mild warning, its three‑month average near target should give the RBA confidence to hold and monitor developments around Iran.

Inflation data justify holding rates

"Unlike the Reserve Bank of New Zealand, the Reserve Bank of Australia (RBA) has already raised its key interest rate three times in recent months. However, this morning’s inflation data confirms our assessment that a pause is now likely to follow."

"Prices fell unexpectedly in April, declining by 0.1% month-over-month. This was driven by a drop in transportation costs, partly due to falling gasoline prices compared to the previous month. After rising by 33% in March, prices fell by 7% in April."

"Overall, prices are of course still significantly higher than before the Iran conflict. But at least this development provides some relief. As a result, the annual rate also fell from 4.6% to 4.2% - though it remains well above the RBA’s target of 2-3%."

"The central bank’s preferred measure of inflation, trimmed-mean inflation - which excludes outliers at both the high and low ends of the calculation - rose slightly compared to the previous month. This is certainly a small warning sign."

"However, over the last three months, trimmed-mean inflation averaged just 3.1% on an annualized basis, only slightly above the central bank’s target. This should give the RBA the confidence to let the already implemented interest rate hikes take effect for now and to wait and see how the situation in Iran develops."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)