In this Asia Focus Andrew Robinson, correspondent for Saxo Capital Markets continues to draw attention to inflation in the region, analysing in particular Australia’s second quarter CPI data and the outlook for interest rates Down Under and in New Zealand. He also looks at the Singapore dollar's role in combating imported inflation.

Australia’s inflation is on the rise, confirmed a Consumer Price Index report for the second quarter. The index rose 0.9% from the first quarter and 3.6% versus the same period one year ago, slightly higher than expectations. The higher than expected numbers have somewhat changed the landscape for interest rates and the AUDUSD reacted strongly. Now a rate hike is more likely to be on the cards than a rate cut by the end of the year. A rate change however is first likely to occur at the RBA's November meeting rather than its August meeting.
The data came just one day after the Reserve Bank of Australia's Governor Glenn Stevens made encouraging comments about Australian consumers’ spending behaviour, citing that he expects the current lag to be short-lived. The Australian economy is however still struggling with its two-tier status with the mining industry accounting for most growth while other sectors are by and large seeing limited to sluggish demand.

Looking further south in the region, the Reserve Bank of New Zealand holds a rate meeting Thursday. While there is room for the RBNZ to hike interest rates no increase is expected this time, however hawkish rather than dovish guidance will probably be given.

Elsewehere in Asia, Singapore reported an inflation rate of 5.2 percent for June, up from 4.5 percent in May, though still below the January peak of 5.5 percent. The economy in Singapore is clearly facing pressure from food inflation and a tight labour market, however the stronger Singapore dollar is helping to combat imported inflation.

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