Inflation In Australia Exploded In The Last Quarter And It Will Change The Tone At The RBA's Next Meeting

InflationPhoto: Getty / Matt Cardy

The Australian bureau of statistics has just released a much stronger than expected 4th quarter 2013 headline CPI of 0.8% which takes the year-on-year number to 2.7%.

The Australian dollar has roared higher as a result as traders price out the chances of another rate cut any time soon.

On the Sydney Futures Exchange the 90-day futures curve has reacted accordingly with prices falling (rates higher) across the entire curve.

After this week’s unexpectedly strong TD Securities Monthly CPI of 0.7% there was always a risk that the December Quarter CPI was going to print on the high side but most observers thought it a low probability. Adding to the disquiet will be the big 0.9% rise in the trimmed mean.

The significance of the trimmed mean is that when the volatile items are stripped out it is much higher than expected, no doubt reflecting the fall in the Aussie dollar RBA Governor Glenn Stevens is so hoping for.

It’s the other side of the lower dollar coin. A print this high and so far above expectations coupled with the obvious trend higher in the quarterly results that is now in evidence is likely to change the tone of discussions around the table at the next RBA Board meeting.

That’s what has got Australian dollar traders so excited and interest rate futures traders worried.

Chart: VantageFX

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