By Jacob Greber July 20 (Bloomberg) -- Prices paid to Australian producers fell by a record amount in the second quarter as a rising currency cut import prices and demand for equipment slowed. The producer prices index declined 0.8 percent from the first quarter, the biggest decline since the data was first recorded in 1998, the Bureau of Statistics said in Sydney today. The median estimate of 16 economists surveyed by Bloomberg was for a 0.2 percent drop. The index rose 2.1 percent from a year earlier. The Australian dollar’s 17 percent gain in the second quarter cut the cost of imported goods, helping further ease wholesale inflation pressures amid the worst global recession since the Great Depression. Consumer inflation probably slowed to below the central bank’s target range of 2 percent to 3 percent, analysts predicted ahead of a report on July 22. “The big fall was in imported prices and a lot of that has to do with the stronger currency,” said Stephen Halmarick, head of investment markets research at Colonial First State Global Asset Management in Sydney. “There was also lower demand for some of the bigger capital equipment items. The trend over the second half of this year and into next year will be for further falls in inflation.” Australia’s currency traded at 80.67 U.S. cents at 12:27 p.m. in Sydney from 80.63 cents before the report was released. The two-year government bond yield rose 3 basis points to 4.07 percent. A basis point is 0.01 percentage point. Global Inflation Inflation pressures have eased around the globe. Wholesale prices in the U.K declined 1.2 percent last month from a year earlier, the most since 2001, and China’s producer prices dropped 7.8 percent in June. Industrial machinery and equipment manufacturing costs fell 5.6 percent in the second quarter and construction dropped 0.5 percent, today’s report showed. Imported goods prices declined 5.9 percent. In contrast, the cost of petroleum refining rose 5 percent last quarter from the previous three months. Consumer prices rose 1.5 percent in the second quarter from a year earlier, slowing from an annual 2.5 percent gain in the first quarter, according to the median estimate of 19 economists surveyed by Bloomberg. The consumer price index will be released on July 22. Central bank Governor Glenn Stevens slashed borrowing costs between September and April by a record 4.25 percentage points to 3 percent. He left the rate unchanged on July 7 for a third month. Interest Rates Stephens also said this month that signs of weaker inflation give policy makers scope to cut borrowing costs again if needed to spur domestic demand. Australian employment fell in June and the jobless rate rose to the highest level in almost six years as the global recession reduced demand for iron ore and coal, prompting mining companies to fire workers. The value of Australian exports plunged in the second quarter by the most in almost 25 years as coal prices tumbled 36.8 percent and the nation’s currency rose, a report showed July 17. Today’s report is “consistent with a broad-based easing in inflationary pressures for the year ahead,” said Benjamin Dinte, an economist at Macquarie Group Ltd. in Sydney. Still, Stevens’ decision about whether to cut borrowing costs again “will depend more on the performance of the housing and labor markets, rather than the inflation,” he said. To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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