Australian Inflation Rate Accelerates to 5.2% in August

Highlights

• The Australian annual inflation rate accelerated in August, supporting the higher-for-longer interest rate outlook.
• China industrial profit figures fell short of forecasts, sending mixed signals.
• US Core Durable Goods up next.

Australian Annual Inflation Rate Accelerates in August

This morning, Australian inflation figures for August garnered investor interest. Investors expect that the RBA will keep interest rates higher to tame inflation. A pickup in inflationary pressures would support the more hawkish outlook on the RBA interest rate trajectory.

The Australian annual inflation rate accelerated from 4.90% to 5.20% in August. Economists forecast an inflation rate of 5.2%.

According to the Australian Bureau of Statistics (ABS),

• Prices for housing (+6.6%), transport (+7.4%), food and non-alcoholic beverages (+4.4%), and insurance and financial services (+8.8%) were the main contributors to inflation.
• However, the annual inflation rate for food and non-alcoholic beverages softened from 5.6% in July 2023.
• Prices for housing (July: 7.3%) also softened, while prices for transport (July: 0.3%) and insurance & financial services (July: 8.5%) accelerated in August.
• Excluding volatile items and holiday travel, the monthly CPI indicator increased by 5.5% in August, down from 5.8% in July.

The latest inflation numbers aligned with market expectations of higher interest rates for a prolonged period.

However, industrial profit numbers from China were also in focus this morning. Industrial profits declined by 11.7% (YTD) year-over-year in August versus a 15.5% decline in July. Economists forecast profits to fall by 10.0%. Despite being weaker than forecasts, industrial profit numbers from China have been recovering in recent months.

AUD to USD Reaction to the Australian Inflation Numbers

Before the numbers, the AUD/USD fell to a low of $0.63867 before rising to a pre-stat high of $0.64074.

However, in response to the economic indicators, the AUD/USD rose to a post-stat high of $0.64086 before falling to a low of $0.63974.

This morning, the AUD/USD was up 0.02% to $0.63978.

Next Up

Durable and core durable goods orders will be in focus later today. Better-than-expected figures would support the more hawkish Fed interest rate path.

Economists forecast core durable goods orders to increase 0.1% in August. Core durable goods orders increased by 0.5% in July.

While the economic indicators will draw interest, investors must also consider FOMC member speeches. Dovish comments on monetary policy would surprise the markets.