Australia | Sep 28 2007
By Rudi Filapek-Vandyck
The TD Securities/Melbourne Institute Monthly Inflation Gauge has returned to a 3% headline reading in September. The independent inflation gauge has now recorded 3% headline inflation in Australia for the third time in the past six months. Apart from September, July and April had headline inflation readings of 3% as well.
The other three months generated readings of 2.6% (twice) and 2.9% (August).
Underlying (trimmed mean) inflation rose by 0.1% compared with August and by 2.9% compared with September last year. Anyway you look at it; inflation in Australia continues to remain at the top end of the Reserve Bank of Australia’s target band of 2.0 to 3.0%, economists at TD Securities and the Melbourne Institute point out.
This is not to say the September gauge didn’t contain some positive elements as the Monthly Inflation Gauge rose by 0.2% in September following a 0.5% rise in August. Nevertheless, over the twelve months to September, the Inflation Gauge rose by 3.0%, slightly above the 2.9% rise recorded for the twelve months to August.
Contributing most to the overall increase in the September figure, according to TD Securities/Melbourne Institute, were rises in the prices of holiday travel and accommodation, meat and seafood, sport and other recreational activities, and household furniture and appliances. The economists report these rises were partially offset by falls in the prices of fruit and vegetables, and audio, visual and computing equipment. The biggest change was observed in the price of fruit and vegetables (down 3.7%), while the price of fuel rose slightly (up 0.3%, following a fall of 3.8% in August).
According to Joshua Williamson, Senior Strategist at TD Securities, “Inflation remained elevated in September with little evidence of a meaningful pullback after two extremely high results. The only thing standing in the way of an imminent interest rate hike are residual concerns over global liquidity and the recent repricing of market risk. The run of strong monthly inflation data presents more evidence of an overheating economy. The only way this can be tackled in the current phase of fiscal policy largesse is through a tightening in monetary policy.
With the official CPI for the September quarter due for release on 24 October and that forecast to be an uncomfortably high 1.3%, the RBA Board will have compelling reasons to increase the cash rate at its November meeting. Indeed, it is not clear that just one more interest rate rise is enough to control inflationary pressure.”
The headline ABS inflation is forecast to be 1.3% in the September Quarter.