- Australia’s monthly Consumer Price Index is forecast to rise to 5.4% in September, up from 5.2% in August.
- The quarterly CPI is expected to show a decrease in the annual inflation rate from 6% in the second quarter to 5.3% in the third.
- The numbers will be critical for the Australian Dollar ahead of the RBA meeting in November.
The Australian Bureau of Statistics (ABS) will publish two inflation reports on Wednesday at 00:30 GMT. These reports include the quarterly Consumer Price Index (CPI) and the monthly CPI. These figures will be crucial for the Australian Dollar (AUD) ahead of the Reserve Bank of Australia (RBA) meeting scheduled for November 7.
Inflation in Australia is expected to remain above the RBA’s target range of 2%-3% during the third quarter. Since peaking in December 2022, when the monthly rate showed an annual increase of 8.4%, inflation has been on a downward trend. Upcoming inflation figures on Wednesday could indicate that the quarterly annual rate is at its slowest level since the first quarter of 2022 or even the fourth quarter of 2021.
However, there is a possibility that the pace of inflation during the third quarter may have accelerated, potentially reaching the “inability to make satisfactory progress” threshold mentioned by the RBA at its last meeting. This could indicate the possibility of another rate hike. Market participants will closely monitor these figures.
What to expect from Australia’s August inflation rate figures?
On Wednesday, ABS will publish the Consumer Price Index (CPI), which is a quarterly measure of inflation, as well as the monthly CPI. According to the RBA, the monthly CPI is considered more relevant as it includes updated prices for around two-thirds of the CPI basket each month.
The Consumer Price Index is expected to show an increase of 1.1% during the third quarter, an acceleration from 0.8% in the second quarter. This increase is attributed to higher fuel and electricity costs. The annual inflation rate is expected to decrease from 6% to 5.3%. The trimmed average CPI, a measure of core inflation that excludes the most volatile items, is projected to rise 1.1% in the third quarter, and the annual rate will slow from 5.9% to 5%.
The monthly CPI is expected to show a rebound in the annual rate, going from 5.2% in August to 5.4% in September, which would be the highest level since June.
If the numbers line up with expectations, the RBA would welcome the decline in the core inflation measure. However, higher headline inflation numbers could raise concerns and challenge the RBA’s tolerance for inflation to remain above the target range. Even if the numbers match market consensus, they could raise expectations of another rate hike by the RBA before the end of the year.
The next monetary policy meeting is scheduled for November 7. Currently, the interest rate market suggests that the probability of a rate hike is less than 25%, but rises to almost 50% by the December meeting. Higher inflation figures could alter the entire outlook.
In her first prepared speech on Tuesday, RBA Governor Michele Bullock said that “the board will not hesitate to increase the cash rate further if there is a substantial upward revision to the inflation outlook. Our objective remains that inflation will return to the target within a year.” a reasonable period of time while maintaining employment growth.
In its latest statement, the RBA reiterated that the central forecast is for CPI inflation to continue to decline and return to the 2-3% target range by the end of 2025. Meeting minutes noted that further tightening of the rules may be necessary. policies if inflation turns out to be more persistent than expected. The RBA Board “has little tolerance for a slower return of inflation to target than currently expected. Therefore, whether or not a further increase in interest rates is necessary will depend on incoming data and how this alters the economic outlook and evolving risk assessments.”
How could Consumer Price Index reports affect AUD/USD?
Inflation figures could significantly affect the Australian Dollar (AUD). If the numbers are higher than expected, it would fuel expectations of another interest rate hike and strengthen the AUD. However, excessively high figures may not be sustainably positive for the currency as they could indicate the need for higher interest rates, which could affect the overall economy. Furthermore, if the economic outlook worsens significantly, the RBA may have to prioritize controlling inflation even at the expense of other economic factors.
On the other hand, if inflation slows more than expected, it would suggest there is no immediate need for the RBA to raise interest rates. Initially, this could be negative for the Australian Dollar in the short term. However, it could also indicate a more optimistic outlook for the Australian economy, without the need for further tightening of monetary policy. As a result, the overall impact on the AUD could be positive.
AUD/USD is trading near year-to-date lows, with crucial support at 0.6280. A break below this level could trigger further bearish acceleration, potentially targeting the 0.6200 level and even the 2022 low of 0.6169.
On the other hand, the pair is approaching a bearish trend line and the significant 55-day SMA at 0.6410. A firm break above this level could strengthen the outlook for the Australian Dollar, which could lead to further gains and a test of the 0.6500 level, which has been a notable resistance in previous months. An upside breakout could change the outlook from negative to neutral.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
