Australia | Jan 14 2008
By Rudi Filapek-Vandyck
The TD Securities/Melbourne Institute Monthly Inflation Gauge rose by 0.6% in December, following consecutive 0.3% rises in October and November. In the twelve months to December, the Inflation Gauge rose by 3.7%, following a 3.4% rise for the twelve months to November. The economists point out this is the highest year-end figure since December 2006 and also the fourth highest increase in the five year history of their Inflation Gauge.
Contributing most to the overall increase in December were price rises for automotive fuel, deposit and loan facilities, rental accommodation and overseas holiday travel. The rises were partially offset by falls in the prices of seafood and confectionary items. The price of automotive fuel for the twelve months to December rose by 17.2%, while the price of rental accommodation rose by 8.6% over the same period which marks another highest increase in the history of the Inflation Gauge.
Joshua Williamson, Senior Strategist at TD Securities comments “Not only has inflation pressure remained strong, it intensified in December. The RBA will be particularly uneasy with both headline and underlying inflation exceeding 3% and with the fact that there are few signs, if any, that inflation pressures are easing. The sharp increase in dwelling rent is evidence of a major inflation problem that is linked to the commodities boom, fiscal policy largesse, a labour market skills and housing shortage. Given the housing shortage is certain to persist right through 2008 and possibly beyond, the rise in dwelling rent is likely to underpin inflation for some time.”
He added: “Resilient domestic data and confirmation of an inflation break-out strongly advance the case for an increase in interest rates at the February RBA Board meeting, even with the financial markets pricing in the risk of a US recession. It would seem that only a bout of even more intense market weakness stands in the way of an interest rate rise on 5 February.”
Don Harding, economist at the University of Melbourne and co-creator of the Inflation Gauge, said that, “On the basis of the Inflation Gauge to December, we have increased our forecast of December quarter headline inflation from 0.95% to 1.1%. He believes this is consistent with “net balance statistics that show that price pressure is now broadly based across the economy at levels not previously seen in the five-year history of the inflation gauge. This reflects a sustained increase in the breadth and strength of price pressure in the six months to December 2007.”
The January 2008 TD/MI Inflation Gauge will be released at 10.30am AEST, Monday 4 February 2008.