AUDUSD Nosedives After Australia's Inflation News

Prices still rising below the Reserve Bank's 203 per cent target

Cheap oil in recent years and the tepid inflation environment has made life hard for New Zealand's Reserve Bank, which delayed cutting interest rates too aggressively for fear of stoking demand for an already hot property market.

She puts the odds of a in line outcome at 35%, with the prospect of a undershoot in core CPI - as was the case in the March quarter past year which led the RBA to cut interest rates twice over the following three months - at just 5%.

Fourth quarter inflation was weaker than expected amid a slump in the price of health care, transport and communications. "We expect underlying inflation to gradually climb from here as the recent rise in commodity prices boosts incomes and flows through to support for domestic wages and inflation".

The consumers price index rose 0.4% in the three months ended December 31 for an annual pace of 1.3%, Statistics NZ said. "Household price inflation is up from a historical low of 0.1% for the December 2015 year".

The Australian dollar has been one of the best performing currencies at the start of this year lifting the AUD/USD rate from around the 0.7200-level at the end of last year back towards the 0.7500-level around where it spent most of last year trading. The average of RBA's two core inflation measures has remained at around 1.6% throughout a year ago.

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The most significant price rises this quarter are tobacco (+7.4 per cent), automotive fuel (+6.7 per cent) and restaurant meals (+1.1 per cent).

Inflation has lagged below the Reserve Bank of Australia's 2-3% target band since late 2014.

Vegetables rose 2.5 per cent in the December quarter 2016. "Offsetting these rises are price falls for salad vegetables, tomatoes, lettuce and celery", the Bureau noted.

Over the year to December non-tradables inflation was 2.1 per cent, well up on the 1.6 per cent recorded in the year to June.

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