Australia's producer prices climbed last quarter as higher fuel costs spilled through the supply chain, cementing expectations for a sizable increase in consumer prices, due later this week.
The price of finished products (PPI) increased by 1.0 percent in the second quarter, topping forecasts of a 0.8 percent rise on higher petrol and construction costs. Still, growth for the year eased to 2.3 percent, well down from a peak of 4.5 percent in the second quarter of last year and the slowest pace since mid-2004.
"Today's rise in the PPI was above expectations," noted Adam Carr, a senior economist at UBS. "But at the core level, price pressures aren't too threatening with the year-on-year pace easing and the quarterly increase not being overtly aggressive."
As a result, he saw no reason to change his forecast for a 1.0 percent rise in the consumer price index (CPI), due on Wednesday. There was a familiar divergence between foreign and home-grown price pressures. Domestic prices rose 1.5 percent in the quarter, while a stronger Australian dollar helped drive import prices down 1.6 percent.
The local dollar edged up above 88 US cents after the data. Bank bill futures and bonds held on to offshore gains as the data was not seen adding greatly to the risk of a rise in interest rates from the Reserve Bank of Australia (RBA).
"There is little bit more pressure on the domestic front than we anticipated, but we don't think this should have any material impact on the outlook for inflation," said Warren Hogan, head of market economics at ANZ Investment Bank.
"There's nothing to make us to think the Reserve Bank could be hiking any sooner," he added. Interbank futures are implying around a 30 percent chance of a rate hike to 6.5 percent in August.
Analysts were quick to note that the producer price series does not have a close correlation to CPI over the long run, their weighting structure being radically different. However, the two series have moved more in lock-step in the past five quarters.