The Australian Bureau of Statistics (ABS) released the consumer prices data for the first quarter. This is a very important set of data because it tells investors, traders, and policy makers about the status of inflation in the country. The data missed what investors were anticipating. In the quarter, consumer prices rose by 0.4%. This was lower than the 0.5% traders were expecting and the 0.6% of last quarter. On an annualized basis, the CPI rose by 1.9%. This was lower than the expected 2.0% and last quarter’s 1.9%.
In the quarter, the main drivers for inflation were the private school fees and the bi-annual prices increases in utilities. The two were in line with what analysts were expecting.
The fees for secondary education rose by 3.3% while that of petroleum products rose by 6%. Electricity prices rose by 1.8%. In addition, pharmaceuticals, vegetables, and medical services rose by 5.6%, 3.7%, and 1.5% respectively. The price increases were offset by the prices of international travel and accommodation, and computing prices which dropped by 2.4% and 6.1% respectively.
The 1.9% inflation rate is close to the 2% Reserve bank of Australian officials have set as target. However, it is still lower than what analysts had expected.
This means that the RBA may not be under pressure to increase interest rates in the coming months. This is coupled by the fact that the officials are concerned about the falling house prices in key markets like Sydney and Melbourne. In addition, the country is facing the challenge of transitioning from natural resources to services.
Perhaps, the biggest source of worry to the officials is the slow wages. In the past few months, the economy has continued to add jobs, bringing the unemployment rate to about 5%. However, the trend has failed to satisfy the theory of the Philips Curve. The theory states that wages tend to go up when the unemployment rate is falling. In the past months however, the country has continued to experience low wage growth. They are also concerned about the current uncertainties on trade, caused mostly by Donald Trump. They believe that a trade war would affect the growth of the country.

This year, the Australian Dollar has fallen by about 2.5% against the US dollar. Today, it has gone up by less than 20 basis points, mostly because of the overall dollar weakness.

Meanwhile, the Germany Business Climate data released today missed what the analysts had expected. The data showed that the climate continued to decline to 102.1. This was after another decline last month that showed the data drop to 103.3. Analysts were expecting the climate to fall to 102.8. At the same time, the Italian data also showed a decline in the business climate. The country reported a data of 107.7 which was lower than the expected 108.8. As a result, the euro fell against the dollar by about 10 basis points.

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