Australia | Feb 04 2008
By Chris Shaw
With the Reserve Bank of Australia (RBA) meeting tomorrow to decide on interest rates, the expectation of a tightening has not diminished with the release of continued strong inflation data.
The latest data comes via the January update of the TD Securities-Melbourne Institute Monthly Inflation Gauge, which rose 0.3% in January thanks to higher prices for utilities, financial services, fuel and education, partially offset by falls in price for fruit and holiday accommodation and travel.
The result means for the year to the end of January the gauge rose by 3.9%, up from an annual 3.7% increase as at the end of December.
This yearly reading is the highest in almost two years and according to TD Securities senior strategist Joshua Williamson means the inflationary pressures of last year are to date carrying over into 2008.
Professor in the Department of Economics and Finance at Latrobe University, Don Harding agrees and points out the data suggests inflation for the March quarter is now heading for an increase of 1.2%, which suggests price pressures remain at record levels.
This is even more apparent when trimmed mean data is used, as this shows an increase of 5.3% for the three months to the end of January, up from 3.9% as at the end of December.
In trimmed mean terms, core inflation for the year to the end of January is now 4.0%, meaning it has been above the top of the RBA’s 2-3% target band since the middle of last year.
Williamson suggests this will mean further tightening of interest rates by the RBA, with further hikes beyond the expected increase this week not to be ruled out unless the inflation data begins to show signs of coming back under control.
He points out while this would be at the same time as the US is cutting official interest rates it would be more in line with tighter monetary policy in the Asian region, to which Australia is now more closely linked.