Australia | Jun 05 2006
By Greg Peel
The TD Securities-Melbourne Institute Monthly Inflation Gauge which measures prices of consumer goods and services rose 0.3% in May. This follows a 0.4% rise in April. The gauge hit a low of 2.6% in March, but has been accelerating since to be 3.2% for the twelve months to May.
This figure is now above the Reserve Bank of Australia’s target band.
TD Securities’ Stephen Koukoulas notes the level is now above the RBA’s own forecast for May which suggests continuation in ensuing months will "all but guarantee" another interest rate rise before the year is out.
The problem is that inflation will likely be magnified by tax cuts and government spending announced in the Budget, says Koukoulas. The boost to incomes and economic activity may allow firms to pass on increased input costs to customers and the risk is the RBA may need another hike to keep inflation under control.
The rise in the cost of petrol was a contributing factor to the latest increase, along with increased prices in holiday travel and financial services. These were kept in check to some degree by price falls in audio, visual, computing and telecommunications.
The University of Melbourne’s Don Harding, co-creator of the gauge, believes many businesses are passing on the cost of increased fuel prices. The June quarter CPI measure from the ABS is forecast to be 0.77%, says Harding.