MNI BRIEF: Lower Feb CPI Print Adds to RBA Pause Case

Australian consumer inflation weakened in February, strengthening the case for the Reserve Bank of Australia (RBA) to hold off on further interest rate increases at the upcoming April 4 board meeting.

The monthly Consumer Price Index fell to 6.8% y/y in February from January’s 7.4% – the second consecutive monthly fall, according to Australian Bureau of Statistics (ABS) data published Wednesday. The indicator peaked at 8.4% in December 2022. Housing rose 9.9%, food and non-alcoholic beverages increased 8%, while transport added 5.6%, the ABS said in a statement.

The February monthly CPI print suggests inflation is falling faster than the RBA's forecast. The central bank had tipped inflation to reach 6.75% by June in its last Statement on Monetary Policy published last month. The case for an interest rate pause was also strengthened by Tuesday’s modest 0.2% rise in Australian retail sales last month (See: MNI BRIEF: Aussie Feb Retail Sales Cool RBA Rate Expectations).

Overnight index swaps (OIS) indicate the RBA will keep rates steady at 3.6% on Tuesday, with OIS pricing in a 25bp cut by December. The Australian dollar fell against the US dollar following the February CPI print, which was lower than the 7.2% forecasted increase. (See: AUD: A$ Back Sub 0.6700 On CPI Miss)