Australia | Apr 06 2009
By Chris Shaw
Inflation in Australia is nothing if not volatile, at least according to the TD Securities-Melbourne Institute Monthly Inflation Gauge. For March the gauge fell by 0.1% following on from rises of 0.7% and 0.8% in February and January respectively.
For the 12 months to March the gauge shows inflation in Australia has risen by 2.6%, which is down from the 3.1% year-on-year rise recorded in February. TD Securities global strategist Stephen Koukoulas notes over the past six months the level of prices has risen by just 0.3%, which implies average monthly rises of less than 0.1%.
Koukoulas points out the latest number means inflation in Australia is continuing to moderate, with the March numbers specifically helped by price falls for automotive fuel, tobacco, rental accommodation and dairy and related products. Partial offsets were price rises for fruit and vegetables, insurance services and books, newspapers and magazines.
According to Koukoulas, the Reserve Bank of Australia (RBA) will likely take some comfort from the fall in inflation, which frees it up to resume its interest rate cutting cycle at this week’s meeting. As well, Koukoulas suggests some of the increases in the gauge in January and February can be linked to the weaker Australian dollar and given the currency has stabilised of late these imported pressures are also easing.
Co-creator of the gauge, Professor Don Harding of the Melbourne Institute, estimates the March reading implies inflation for the March quarter of 1.16%, which equates to an annual inflation rate of 3.6%. Risk to this number remains to the downside in his view given the fall in petrol prices in March.
Harding continues to see price pressures as strong, pointing out of the expenditure groups incorporated in the model prices in March rose in 31 groups and fell in only 13. As well, using longer-run measures he notes price pressures remain at the highest level in the history of the gauge as the prices of many goods remain elevated.