Aussie Deflation?

The Aussie is getting hammered this morning on news producer prices unexpectedly fell 0.4% last quarter; consensus estimates were a 0.6% gain.

It may be too early to forecast deflation is settling over the Australian economy. Analysts cite the relative decline in Aussie from its perch near US dollar parity back in July of last year, and suspect this may keep import costs inflated. But once again, we continue to believe it all comes back to China.