Inflation has been gradually sneaking its way across the global economy, pushing prices higher, and squeezing the wallets of everyday citizens. Let’s explore in detail the impact of its pitstop in the land of Australia, and how it has influenced the country’s economic activity.
The Consumer Price Index (CPI) is a commonly used metric to determine the level of inflation in an economy and is highly valued as an effective indicator of price changes.
Monthly CPI has showed an upward trajectory, increasing from 6.9% in October 2022 to 7.3% in November 2022, followed by a further rise to 8.4% in December 2022. However, in January 2023, the indicator recorded a slight decline to 7.4%.
Gross Domestic Product (GDP) measures the value of goods and services produced within a country and is used to assess economic growth.
The first quarter GDP for 2023 was reported as 0.5%, falling short of both the forecasted 0.8% and the previous 0.7%.
The unemployment rate measures the percentage of the labor force in a country that is currently unemployed and seeking employment.
In January 2023, the unemployment rate has been surpassing expectations, but with no significant increases. It reached 3.5%, followed by an additional rise to 3.7% in February, then a slight decline back to 3.5% in March, indicating overall stability throughout the first quarter.
What do the Numbers Really Mean?
January CPI indicates that inflationary pressure is easing. However, weaker GDP growth and a steady unemployment rate presents slower economic growth. If the economic metrics continue in this momentum, there is a slight chance that the economy could face a recession.
On Wednesday 29th March at 4:30 AM (GMT+4), the Australian Bureau of Statistics will release the country’s latest CPI figures. The market is expecting inflation to fall from 7.4% to 7.1%.
As a result, the central bank may pause its series of interest rate hikes at its upcoming Cash Rate release on 4th April 2023. This suggests that the central bank may exercise caution in its monetary policy decisions, considering the impact on the broader economy. Following the last increase of 25 basis points to 3.60%, rates reached its highest level in a decade.
Consequently, the AUD/USD pair may witness some volatility due to opposing approaches between the Reserve Bank of Australia (RBA) and the Fed. While the Fed is primarily concerned with inflation, the RBA has shifted its attention toward financial conditions.
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