The Australian Dollar slipped a little on Wednesday after official consumer price index data came in below expectations. The CPI rose 0.5% in the final three months of 2016 compared to the quarter before, for an annualized gain of 1.5%. The markets had been looking for respective gains of 0.7% and 1.6%. Annual inflation has not been above 2% since the third quarter of 2014. The Reserve Bank of Australia’s mandate is to keep it between 2% and 3% over the economic cycle.
The latest data suggest that price rises are certainly not a problem for the Australian economy at present and that, compared to the RBA’s target, the economy could do with a bit more pricing power. The upshot of this is that higher Australian rates remain unlikely for now even if the record low 1.5% cash rate goes no lower. Foreign exchange markets have clearly spotted that this morning in Asia.CPI inflation has been creeping higher for three straight quarters now, but remains historically low and under the 1.7% level at which it started 2016.
