Australian inflation below forecasts, rate cut eyed

Australian inflation came in short of expectations for a third consecutive quarter on Wednesday, boosting the case for an August interest rate cut as mining investment peaks.

The Australian Bureau of Statistics (ABS) said consumer prices rose 0.4 percent in April-June compared with the previous quarter, while they were up 2.4 percent year on year as the economy transitions away from a decade-long commodities spending boom.

Analysts had expected 0.5 percent on-quarter and 2.5 percent on-year. The muted data was seen as supporting the case for an interest rate cut next month from the current record low of 2.75 percent.

Underlying inflation, which strips out volatility caused by events such as extreme weather, was slightly higher at 0.6 percent. The Australian dollar to edge up to 93.13 US cents from 92.80 cents before the data's release.

Falls in the price of domestic holiday travel and accommodation and petrol were offset by rises in medical and hospital costs, tobacco prices, furniture and home purchases, the ABS said.

Stripping out the effects of Australia's corporate pollution tax, which Canberra recently announced would be scrapped in favour of an emissions trading scheme, economist Stephen Koukoulas said inflation was likely to be 1.5 percent on-year next quarter, a very weak result.

Koukoulas, who works for Market Economics, added that price rises were "too low" and a central bank rate cut next month was "as close to a done deal as one can be".

The Reserve Bank of Australia left the door open for further cuts this month, saying the inflation outlook could provide some scope for more easing as the China-led mining investment boom unwinds.

Treasurer Chris Bowen recently described the transition away from resources as a challenge, not a crisis, for the economy, which expanded a slower-than-expected 2.5 percent on-year in the first three months of 2013.