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Australia inflation surprisingly soft, lengthens odds on rate hike

Australia inflation surprisingly soft, lengthens odds on rate hike

More so, because the current low-flation environment would likely be transmitted into lower pay rises. Fed's Yellen noted at the testimony that "the neutral rate is now quite low by historical standards, the federal funds rate would not have to rise all that much further to get to a neutral policy stance".

There were also direct economic implications, he said.

'The main one is through wages, and if people feel like their wages aren't growing anymore, they don't want to spend when they get paid, ' he said.

But at a recent Australian Business Economists lunch in Sydney, Reserve Bank Governor Philip Lowe downplayed the chances of a rate rise so soon, saying that worldwide trends wouldn't necessarily dictate Australia's economic path.

This doesn't augur well for household income and by extension, consumer confidence and spending.

But Governor Lowe doubled down on the comments made by Deputy Governor Guy Debelle late last week, that tightening from other central banks wasn't a sign that the RBA was going to begin hiking borrowing costs as well.

While young Australians might have NFI who a NASDAQ is or how much one stock costs, we have a deep knowledge of the foreign exchange market - exclusively for the goal of buggering off when the temperature gets slightly chilly.

Lowe also defied the suggestion of a growing uniformity some observers have noted among global central bank policymakers.

'Just as we did not move in lockstep with other central banks when the monetary stimulus was being delivered, we don't need to move in lockstep as some of this stimulus is removed'.

"Fed officials are broadening out their reasoning for tighter monetary policy", said James Knightley, analyst at ING Bank, in a note to clients.

Second, the Fed will raise rates again despite the low levels of inflation and even if they don't the unwinding of their $US4.5 trillion balance sheet will help push the U.S. dollar back up. "Obviously the RBA is not going to be happy with these levels".

The AUD/USD dropped on the CPI news because it served as a reminder of just why Australian interest rates are now at historical low and set to remain at these levels for months to come.

If there is no increase in Australian wage pressures then the RBA could become concerned inflation may not return to its target band as expected. "Inflation isn't rapidly moving below the target band, nor is it rapidly lifting back into the target band", James said.

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