Breaking: Australia’s CPI inflation comes in at 1.2% in Q3 vs. 1.1% expected
According to the latest data published by the Australian Bureau of Statistics (ABS) on Wednesday, the nation’s Consumer Price Index (CPI) arrives at 1.2% in the third quarter of 2023, compared with the 0.8% increase seen in the second quarter. The market consensus was for a growth of 1.1% in the reported period.
Annually, Australia’s CPI inflation rose to 5.4% in Q3 2023 as against the expected 5.3% increase and the previous print of 6.0%.
The RBA Trimmed Mean CPI for Q3 advanced 1.2% and 5.2% on a quarterly and annual basis respectively. Markets estimated an increase of 1.1% QoQ and 5.0% YoY in the quarter to September.
The monthly Consumer Price Index inflation climbed to 5.6% YoY in September vs. 5.4% expected and the previous reading of 5.4% rise.
Australian Dollar price today
The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies today. Australian Dollar was the strongest against the Swiss Franc.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.01% | -0.02% | 0.01% | -0.30% | 0.01% | -0.04% | 0.03% | |
| EUR | -0.02% | -0.05% | -0.02% | -0.31% | -0.01% | -0.06% | 0.00% | |
| GBP | 0.03% | 0.03% | 0.03% | -0.24% | 0.02% | 0.00% | 0.05% | |
| CAD | 0.00% | 0.01% | -0.03% | -0.25% | -0.01% | -0.02% | 0.02% | |
| AUD | 0.25% | 0.26% | 0.23% | 0.26% | 0.25% | 0.20% | 0.27% | |
| JPY | -0.01% | 0.02% | -0.02% | -0.02% | -0.29% | 0.00% | 0.03% | |
| NZD | 0.05% | 0.03% | -0.01% | 0.02% | -0.24% | 0.01% | 0.04% | |
| CHF | -0.03% | -0.01% | -0.05% | -0.02% | -0.29% | -0.02% | -0.08% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
This section below was published at 21:30 GMT as a preview of the Australian inflation data.
- The Australian Monthly Consumer Price Index is forecast to rise to 5.4% in September, up from the 5.2% recorded in August.
- The Quarterly CPI is expected to show a decline in the annual inflation rate from 6% in the second quarter to 5.3% in the third quarter.
- The figures will be critical for the Australian Dollar ahead of the November RBA meeting.
The Australian Bureau of Statistics (ABS) will release two reports on inflation on Wednesday at 00:30 GMT. These reports include the quarterly Consumer Price Index (CPI) and the monthly CPI. These numbers 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 reaching its peak in December 2022, when the monthly rate showed an 8.4% annual increase, inflation has been trending down. The upcoming inflation numbers on Wednesday could indicate that the quarterly annual rate is at its lowest 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 might have accelerated, potentially reaching the "failure to make satisfactory progress" threshold mentioned by the RBA in its latest meeting. This could signal the potential for another rate hike. Market participants will closely monitor these numbers.
What to expect from Australia’s August inflation rate numbers?
On Wednesday, ABS will release 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 timely as it includes updated prices for around two-thirds of the CPI basket each month.
The Consumer Price Index is expected to show a 1.1% increase during the third quarter, an acceleration from 0.8% in the second quarter. This rise is attributed to higher fuel and electricity costs. The annual inflation rate is expected to decline from 6% to 5.3%. The Trimmed Mean CPI, a core inflation measure that excludes the most volatile items, is projected to rise by 1.1% in the third quarter, with the annual rate slowing from 5.9% to 5%.
The Monthly CPI is anticipated to show a rebound in the annual rate, increasing from 5.2% in August to 5.4% in September, which would be the highest level since June.
If the numbers align with expectations, the RBA would welcome the decline in the core inflation measure. However, higher headline inflation figures could raise concerns and challenge the RBA's tolerance for inflation to remain above the target range. Even if the numbers match market consensus, it could trigger expectations of another rate hike from 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 below 25%, but it climbs to nearly 50% for 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 raise the cash rate further if there is a material upward revision to the outlook for inflation. Our focus remains on bringing inflation back to target within a reasonable timeframe while keeping employment growing."
In its latest statement, the RBA reiterated that the central forecast is for CPI inflation to continue declining and return to the 2-3% target range by late 2025. The meeting minutes noted that further policy tightening may be required if inflation proves more persistent than expected. The RBA Board “has a low tolerance for a slower return of inflation to the target than currently expected. Whether or not a further increase in interest rates is required would, therefore, depend on the incoming data and how these alter the economic outlook and the evolving assessment of risks.”
How could the Consumer Price Index reports affect AUD/USD?
The inflation numbers could significantly impact the Australian Dollar (AUD). If the numbers come in higher than expected, it would fuel expectations of another interest rate hike and strengthen the AUD. However, excessively high numbers may not be sustainably positive for the currency, as they could indicate the need for higher interest rates, potentially affecting the overall economy. Additionally, 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 that there is no immediate need for the RBA to raise interest rates. This could be initially negative for the Australian Dollar in the short term. However, it could also indicate a more optimistic outlook for the Australian economy, with no requirement for further monetary policy tightening. As a result, the overall impact on the AUD could be positive.
The AUD/USD pair trades 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 downtrend line and the significant 55-day Simple Moving Average (SMA) at 0.6410. A firm break above this level could strengthen the outlook for the Australian Dollar, potentially leading to further gains and a test of the 0.6500 level, which has been a notable resistance in previous months. A break higher could change the outlook from negative to neutral.
RBA FAQs
What is the Reserve Bank of Australia and how does it influence the Australian Dollar?
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.
How does inflation data impact the value of the Australian Dollar?
While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.
How does economic data influence the value of the Australian Dollar?
Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.
What is Quantitative Easing (QE) and how does it affect the Australian Dollar?
Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.
What is Quantitative tightening (QT) and how does it affect the Australian Dollar?
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.