Australian inflation came in below forecast in the January-March quarter, data showed on Wednesday, underscoring softness in the economy and spurring talk of an interest rate cut.
The consumer price index (CPI) rose 0.4 per cent quarter on quarter and 2.5 per cent year on year, the Australian Bureau of Statistics said. Analysts had predicted 0.7 per cent and 2.8 per cent.
While the figures are up from the 0.5 per cent and 2.2 per cent in the previous three months, it is the second straight quarter that inflation has come short of expectations.
The Australian dollar dropped from US$1.0275 to $1.0238 on the data as investors saw them stoking chances of a central bank interest rate cut from the 3.0 per cent it has been at since December.
Data Wednesday showed price rises for new home purchases, pharmaceutical products, tertiary education and tobacco offset falls in the cost of international holiday travel, furniture and seasonal fruit.
Australia dodged recession during the global downturn due to its strong links to China, but its Asia-driven mining boom is nearing its peak and the economy is facing a difficult transition away from the key resources sector.
The economy grew 0.6 per cent in the December quarter, notching 21 continuous calendar years of expansion, but strength in the mining industry is masking softness in the broader economy and Canberra has retreated from vows of a budget surplus.