Slower Inflation Eases Rate Hike Bets in Australia

Australia's consumer prices rose at a slower pace in the June quarter, with fuel costs easing from peaks. The country's core inflation undershot forecasts and reduced pressure for further interest rate hikes.

The Australian Bureau of Statistics reported that its consumer price index (CPI) increased by 0.6% in the second quarter from the previous period. Annual CPI eased to 4.0% from 4.1%. The key trimmed mean measure of core inflation rose by 0.8% on-quarter, just below forecasts for a 0.9% gain.

Market expectations of an interest rate increase next month decreased to 4%, down from 21% previously. A hike this year is still priced at 50%. The Australian dollar fell 0.3% to $0.6953 and 3-year government bond yields declined 10 basis points to 4.482%.

Reserve Bank of Australia Governor Michele Bullock said it was unclear if rate hikes so far were enough to return inflation to target. Housing remains a source of inflation, with new dwelling prices jumping 5.8% in June from a year ago.