• 04/07/2022

Inflation heads to 3%, survey shows

Kim Christian | Sydney Morning Herald | September 6, 2010

Inflation is heading to the upper end of the Reserve Bank of Australia’s (RBA) target band of 3.0 per cent following price rises in alcohol, tobacco and fruit and vegetables, a survey shows.

The TD Securities Melbourne Institute monthly inflation gauge rose 0.2 per cent in August, following a 0.1 per cent rise in July and a 0.3 per cent rise in June.

It says an official interest rate rise is now on the cards, but the central bank has some breathing space until at least the end of the year.

“In the 12 months to August, the inflation gauge rose by 3.0 per cent, resting on the upper bound of the RBA’s two to three per cent inflation target band,” TD Securities said in a statement.

The biggest contribution to the change came from price rises for alcohol and tobacco, fruit and vegetables and furniture and furnishings.

However, these were offset by price falls for meat and seafood, holiday travel and accommodation and automotive fuel.

“The inflation gauge is telling us that the mid-year return to trend GDP (gross domestic product) growth, the income surge arising from the terms of trade boom and ongoing tight labour market are yet to translate into worrisome price pressures,” TD Securities senior strategist Annette Beacher said in a statement.

“In fact, annual underlying inflation is more or less at the mid-point of the Reserve.”

The trimmed mean of the inflation gauge was unchanged in August, following a rise of 0.1 per cent in July.

In the 12 months to August, the trimmed mean rose 2.3 per cent, drifting towards the bottom of the RBA’s two to three percent target band.

Ms Beacher said recent buoyant economic activity appeared to have maintained solid momentum into the September quarter.

“The consumer and private sector more broadly, have contributed to this return to trend economic growth,” Ms Beacher said.

“While we remain of the view that the next move is up for the RBA, we have again pushed back the timing given the lack of a smoking gun on the inflation front.

“An additional complication is the clear loss of momentum in global growth and renewed caution by the US Federal Reserve on the outlook for the world’s biggest economy.”

She said the RBA could easily “sit tight” for the remainder of 2010 as mortgage lending rates had already been restored to average levels.


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