Australia | Dec 03 2007
By Rudi Filapek-Vandyck
Price inflation remains on an uptrend in Australia according to a leading independent monthly inflation gauge.
TD Securities and the Melbourne Institute report their Monthly Inflation Gauge rose by 0.3% in November, following on from a 0.3% rise in October. Over the twelve months to November, the Inflation Gauge has now risen by 3.4%, up from a 3.3% rise in October.
According to TD Securities and the Melbourne Institute this is the highest year-end inflation figure since March.
Contributing most to the overall increase in the November figure was a significant rise in the price of automotive fuel, and rises in the prices of deposit and loan facilities, fruit and rental accommodation. These rises were partially offset by falls in the prices of vegetables, holiday travel and accommodation, and audio, visual and computing equipment.
The economists highlight the price (cost) of automotive fuel for the 12 months to November rose by 17.5%, while the price of rental accommodation rose by 7.5% over the period.
Joshua Williamson, Senior Strategist at TD Securities, suggests the underlying inflation rate is still worrisome for the Reserve Bank as the TD-MI measure of the trimmed mean is now 3.6% higher than a year ago. This, he points out, is the equal second highest increase in the five year history of the series and well above the top of the RBA’s target band.
He believes that interest rates in Australia would have been raised without any doubt at this week’s RBA meeting if it were not for the ongoing debt and credit market related problems for financial institutions.
Williamson: “On inflation grounds alone, the case for a further interest rate rise is compelling, but the market ructions suggest a cautious approach from the RBA.”
Dr. Don Harding, economist at the University of Melbourne and co-creator of the Inflation Gauge, believes that “in the absence of the artificial effects from child care benefits the September Quarter inflation rate would have been 0.91 per cent. Thus we are forecasting inflation continuing at a rate above the RBA’s target range. This is consistent with the statistics on the net balance of price rises over price falls which stood at 19 in November, averaged 13.33 in the three months to November and recorded 13.5 in the thirteen months to November. The average net balance over the history of the Inflation Gauge is 10 which confirm that the current reading signals strong broadly based inflation pressure.”
The December 2007 TD – MI Inflation Gauge will be released at 10.30am AEST, Monday 14 January 2008.