By Wayne Cole
SYDNEY, Jan 31 (Reuters) - Australian consumer prices remained subdued last quarter as core inflation ended a second whole year below the central bank's target, leading investors to widen the odds on a hike in interest rates anytime soon.
The local dollar fell a quarter of a U.S. cent as the headline consumer price index (CPI) rose 0.6 percent in the December quarter, missing forecasts for a 0.7 percent rise.
Annual CPI inflation ran at 1.9 percent, again under estimates. Key measures of underlying inflation favoured by the Reserve Bank of Australia (RBA) averaged around 1.9 percent for the year, dead on expectations.
Core inflation has now undershot the RBA's long-term target band of 2 percent to 3 percent for eight straight quarters, the longest period on record.
A major headwind has been wages growth, which slowed to historic lows even as employment boomed, a phenomenon shared with much of the developed world.
As a result, the central bank has kept interest rates at an all-time low of 1.5 percent since mid-2016, and appears in no hurry to raise them.
Investors assumed the benign inflation result would only add to the patience of policy makers and pushed out the likely timing of a first hike. Interest rate futures imply around a 50-50 chance of a move by August, with 1.75 percent not fully priced in until December.
The Australian Bureau of Statistics reported the main price increases in the fourth quarter were petrol, which jumped more than 10 percent, domestic holidays and fruit.
Those were balanced by falls in the cost of travelling abroad, telecoms and computers and televisions.
A fierce price war has broken out in Australian retail in recent years driven by an influx of foreign chains, with no sign of a cease-fire any time soon.
If anything, the struggle is only heating up as online behemoth Amazon launched late last year vowing to beat all the competition - a disinflationary trend that policymakers now refer to as the "Amazon effect".
Adding to downside pressure will be strength in the local dollar, which climbed from as low as $0.7500 in early December to reach a 2-1/2-year peak of $0.8136 last week.
If sustained, the rise will lower prices for many imported goods that have already been depressed by globalisation and the ascent of industrial giants such as China.
Prices for such tradable goods and services rose 0.5 percent in the December quarter, but were still down 0.3 percent for the year.
(Reporting by Wayne Cole; Editing by Sam Holmes)
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