Consumer prices in Australia rose by less than expected in the second quarter of 2022, suggesting that there may be less pressure for another interest rate hike by the Reserve Bank of Australia.
The consumer price index (CPI) rose 0.8% in the April-June period, slower than the 1.0% increase economists had forecast. Annual inflation slowed to 6.0%, below estimates of 6.2%.
The softer-than-expected inflation data reduced market expectations of a rate hike at the Reserve Bank of Australia's next policy meeting on August 2. Interest rate futures now show just a 31% chance of a quarter percentage point increase, compared to 50% previously.
The Australian dollar fell against the U.S. dollar after the data release as investors scaled back bets on further rate hikes this year. Three-year bond futures also rose.
While inflation remains far above the RBA's 2-3% target range, economists say the slower price gains in the second quarter and expected July inflation data suggest the bank may now pause rate hikes at its next meeting. However, many still expect further rate hikes later this year given strong wage growth and tight labor market conditions.
Headline inflation is not projected to return to the top of the RBA's target band until mid-2025. The bank will release updated economic forecasts next week along with its policy decision.
