Australia's consumer price index fell to a 10-year low in the second quarter but there was enough in the data to stoke concerns that the Reserve Bank of Australia will abandon further interest rate cuts.
Australian bond yields rose sharply and the Australian dollar rallied on the back of the inflation numbers, which showed core inflation still uncomfortably high in the quarter. Core inflation, which is crucial to interest rate policy making at the RBA, rose 0.8% in the second quarter, slightly more than was expected by financial markets.
The annual rate of increase in core inflation was a solid 3.9%, still well above the central bank's desired 2%-to-3% target band, the Australian Bureau of Statistics said.
The headline consumer price index rose 0.5% in the second quarter from the first quarter and rose 1.5% from a year earlier, the ABS said. The headline data met with the expectations of economists.
Food prices detracted 0.2 of a percentage point from quarterly headline inflation. This was partly driven by a 7.2 per cent fall in the price of fruits and vegetables, the ABS said.
Treasurer Wayne Swan said headline inflation has moderated since mid 2008 and will continue to remain mild. "Inflation is expected to remain subdued over the near term as the effects of the global recession continue to impact on the domestic economy," he said in a statement.