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Australia Q1 PPI Falls Unexpectedly; Boosts Rate Cut Hopes

Australia Q1 PPI Falls Unexpectedly; Boosts Rate Cut Hopes

Australia's producer prices fell unexpectedly in the March quarter, strengthening the case for an interest rate reduction by the Reserve Bank of Australia in its next policy meeting in May.

The Australian Bureau of Statistics on Monday said that the producer price index fell 0.3 percent quarter-on-quarter in the March quarter compared to expectations of a 0.5 percent increase. This was the first decline since the December quarter of 2009. In the December quarter of 2011, the PPI rose 0.3 percent.

The decline can mainly be attributed to lower prices received for some agriculture produces, building construction and manufacturing of industrial machinery and equipment.

Though prices received for electricity, gas and water supply and tobacco product manufacturing increased during the period, this was not enough to reverse the declines in agriculture, construction and machinery production.

Annually, the index rose 1.4 percent, slower than forecast of a 2.2 percent rise. This followed a 2.9 percent annual increase in the December quarter.

The first quarter CPI data, which is expected to be released on Tuesday, is crucial in shaping the central bank's next policy move.

After keeping the cash rate unchanged at 4.25 percent in the April meeting, central bank Governor Glenn Stevens had hinted that further moderation in inflation could prompt the bank to lower the rates, which is currently the highest among developed nations.

The central bank reduced rates by 25 basis points each at its meetings in November and December.

According to official data, the Australian economy expanded only 0.4 percent sequentially in the December quarter. The latest Westpac-Melbourne Institute leading index pointed to below-trend growth for the economy in the coming months.

by RTT Staff Writer

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