Australia's inflation slows slightly in February ahead of war-driven energy shock

SYDNEY, March 25 (Reuters) - Australian consumer ‌prices were flat ​in ​February as prices for domestic holidays and petrol dipped, while core inflation came in a little slower than forecast, though a war-driven ‌spike in oil prices has since magnified inflationary risks.

Data from the Australian ⁠Bureau of Statistics out on Wednesday showed its monthly consumer price index (CPI) was unchanged in February ‌from the previous month, while ‌the annual pace slowed to 3.7%, from 3.8%, still above the central bank's target band of 2% to 3%.

Median forecasts had been for a flat ​outcome in February and an annual rise of 3.8%.

The trimmed mean measure of core inflation increased by 0.2% in the month, under forecasts of 0.3%, keeping ⁠the annual pace steady at 3.3%. January's increase was revised down to 3.3%, from 3.4%.

Russel Chesler, head of ​investments and capital markets at VanEck, said inflation behaved in February but the data was largely irrelevant now.

"With the outbreak of ​war in the Gulf, uncertainty and volatility are ‌in the front seats, with higher energy costs likely flowing on to impact transport, goods and services," he said.

The Australian dollar ⁠initially dipped on the figures but later rebounded to 70 cents along with the recovery in global equity markets. Three-year government bond futures extended an earlier rally to be up ⁠11 ticks to 95.34.

Investors still see a rate hike in May as a toss-up, after ​the Reserve Bank of Australia delivered two rate rises this year to 4.1% as the U.S.-Israeli war on Iran disrupted global oil trade and sent fuel prices surging across the country.

Wednesday's ‌report showed automotive fuel prices fell 3.4% in February before the war broke out, after a drop of 3.2% in January. ‌Costs for domestic holiday travel and accommodation fell by a sharp 7.4% due to ⁠school holidays ending.

Goods inflation ran at ‌an annual rate of ​3.5% in February, while services inflation slowed a little to 3.9%.

(Reporting by Stella Qiu and Wayne Cole; Editing by Christopher Cushing and ‌Jamie Freed)

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