FXTRADING Economic Data Summary (Asia-Pacific | 05/21)

UK Inflation Cools Significantly in April

UK CPI slowed sharply from 3.3% yoy to 2.8% yoy in April, below market expectations of 3.0% and marking the lowest level since March 2025. Core CPI also eased from 3.1% yoy to 2.5% yoy, below the expected 2.7% and the weakest reading since July 2021.

UK services CPI dropped sharply from 4.5% yoy to 3.2% yoy in April. Although goods inflation edged up from 2.1% yoy to 2.4% yoy and monthly CPI rose 0.7% mom, overall domestic price pressures in the UK have clearly fallen from last years levels, showing that high interest rates are gradually weighing on demand. FXTRADING believes the slowdown in UK inflation will significantly reduce pressure on the Bank of England to tighten policy further in the near term. However, energy prices remain the biggest uncertainty ahead. If oil prices rise rapidly again, UK inflation could still face renewed upside risks.

Energy Shock Once Again Dominates Eurozone Inflation

Final data showed Eurozone CPI rose from 2.6% yoy to 3.0% yoy in April. However, core CPI, excluding energy, food, alcohol and tobacco, eased slightly from 2.3% yoy to 2.2% yoy, suggesting that underlying inflation driven by domestic demand has not deteriorated alongside headline inflation.

From a structural perspective, services remained the largest contributor to Eurozone inflation, accounting for 1.38 percentage points of headline CPI, followed by energy at 0.99 percentage points. Food, alcohol and tobacco contributed 0.46 percentage points, while non-energy industrial goods contributed 0.20 percentage points. FXTRADING believes the current rebound in Eurozone inflation remains largely an imported energy-driven shock rather than a sign of overheating domestic demand. However, as long as Middle East tensions continue to disrupt energy transportation and supply, inflation in Europe is unlikely to cool quickly, meaning the European Central Bank will likely maintain a cautious stance going forward.

Canadas April Inflation Misses Expectations

Canada‘s CPI rose 0.4% mom in April, below the expected 0.7% mom. Annual inflation accelerated from 2.4% yoy to 2.8% yoy, also below market expectations of 3.1% yoy. On the surface, inflation appears to be rising again, but a closer breakdown shows that most of Canada’s price pressures are still concentrated in energy.

Energy prices in Canada surged 19.2% yoy in April, while gasoline prices jumped sharply from 5.9% yoy to 28.6% yoy. However, excluding gasoline, inflation actually slowed from 2.2% yoy to 2.0% yoy. At the same time, core inflation measures broadly softened, with CPI common at 2.5% yoy, CPI median at 2.1% yoy and CPI trim at 2.0% yoy, all below market expectations. FXTRADING believes Canadas inflation rebound remains a typical energy-driven phenomenon rather than broad-based price increases caused by economic overheating. As long as core inflation remains stable, the Bank of Canada will most likely continue to stay on hold.

RBA Enters Observation Phase

Minutes from the Reserve Bank of Australias May meeting showed policymakers have started to recognize that interest rates may already be in restrictive territory. At that meeting, the RBA raised the cash rate by 25 basis points to 4.35% in an 8-1 vote. However, the minutes also revealed that after completing this rate hike, policymakers preferred to observe the impact of Middle East tensions, energy prices and household consumption before taking further action.

The RBA board believes current inflation pressures are largely being driven by rising oil and energy prices, while monetary policy itself cannot directly address short-term energy inflation. Meanwhile, Australias economic growth has already slowed below its potential pace, while financing pressures on households and businesses continue to rise. This means that if rates continue to rise aggressively, the risk of a sharper economic slowdown could increase further. Even so, the RBA has not signaled the end of its tightening cycle and continues to stress that it will closely monitor incoming data and act when necessary to bring inflation back to target. FXTRADING believes the RBA has now shifted from a phase of continuous rate hikes toward a more strategic observation phase, but this does not mean policy has fully turned dovish. Energy prices, global supply risks and persistent domestic inflation could still keep Australian interest rates elevated for a longer period.

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