Australia inflation doesn't see spike despite Taylor Swift effect

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Australia inflation doesn't see spike despite Taylor Swift effect

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Updated On: Wed, 27 Mar 2024 11:51:20 PKT

SYDNEY (Reuters) – Australia survived sold out Taylor Swift concerts in Sydney and Melbourne without a spike in inflation as travel and hotel costs in other parts of the vast country swung lower in February, leaving interest rates on track to be cut later in the year.

Data from the Australian Bureau of Statistics on Wednesday showed its monthly consumer price index (CPI) rose at an annual pace of 3.4 per cent in February, unchanged from January and under forecasts of 3.5pc.

For the month, CPI rose 0.2pc. The three-month annualised pace is 2.4pc, within the central bank's target band of 2pc to 3pc.

The Australian dollar eased 0.2pc to $0.6519 and three-year bond futures bounced from earlier lows to be up 2 ticks to 96.42, while markets continued to bet that any rate relief would likely start in August or September.

"While it may appear that inflation has bottomed out, base effects over the coming months should make it easier for inflation to resume its descent," said Rob Carnell, Asia-Pacific head of research at ING, adding it raised the possibility for some monetary easing later this year.

However, a closely watched measure of core inflation was proving stickier. The trimmed mean rose an annual 3.9pc, up slightly from 3.8pc in January. Policymakers had forecast the gauge to fall to 3.6pc by June.

Markets imply around a 68pc chance the Reserve Bank of Australia will cut its 4.35pc cash rate by a quarter point in August, while a move is fully priced in for September. Futures imply a relatively modest 40 basis points of easing for all of 2024.

US stocks slipped on Tuesday, giving up modest gains late in the session to send the Dow and S&P 500 to their third straight decline.

The Taylor Swift effect that drove up travel and hotel-related costs in the country's biggest cities had some analysts looking for an uptick in headline inflation in February.

"Although Taylor Swift performances saw hotel prices rise in Sydney and Melbourne, elsewhere accommodation and airfare prices fell in February due to the end of the peak travel during the January school holiday period," said Michelle Marquardt, ABS head of prices statistics.

Holiday travel and accommodation prices fell by 9.3pc in February from the previous month, helping to offset gains in fuel, education and clothing.

Prices for tradable goods were all but flat in the month, while non-tradable items that are mainly services rose 0.3pc.

RENTS, INSURANCE ACCELERATE

Slowing inflation is one reason that the RBA kept interest rates unchanged at 4.35pc for a third straight meeting this month and softened its stance by dropping a tightening bias.

RBA Governor Michele Bullock has not ruled anything in or out on policy, saying risks are "finely balanced".

The labour market appears to remain strong, with data showing the economy added a staggering 116,500 jobs in February and the jobless rate ticked down to 3.7pc from a two-year high of 4.1pc.

The February CPI report, which provided an update on more services in the first quarter of the year, showed prices for hairdressers, restaurant meals and takeaway food were up 7.0pc, 4.4pc and 6.6pc annually.

Rent inflation accelerated to 7.6pc in February from 7.4pc the previous month, while insurance prices rose 8.4pc from a year ago, speeding up from 8.2pc in January.

"For us, at least the data doesn't have too much in the way of implications in terms of our rate call, which is for the RBA to move in November," said Tapas Strickland, head of market economics at National Australia Bank.

"So probably you will have to wait for another two quarters of inflation prints before you can be confident on services inflation."