Australia | Jul 06 2009
By Rudi Filapek-Vandyck
The TD Securities-Melbourne Institute Monthly Inflation Gauge rose by 0.4% in June, following a 0.3% decline in May and no change in April. In the twelve months to June, the Inflation Gauge has now risen by 1.4%. This marks a fresh record low for the series as well as the second consecutive month that annual inflation has printed below the bottom of the RBA target band.
The economists remind investors the annual increase in the Inflation Gauge in June 2008 was 4.8%.
Contributing most to the overall change in the Inflation Gauge in June were price rises for private motoring, insurance services, and fruit and vegetables. These price rises were offset by falls for books, newspapers, and magazines, alcoholic drinks, and meat and seafood. The price of fuel rose by around 5% in June, although it remains 20% below its level of a year ago. The price of dwelling rent was unchanged in June, after three consecutive monthly falls.
The trimmed mean of the Inflation Gauge rose by 0.1% in June, following a fall of 0.2% in May. In annualised terms, the trimmed mean rose by 0.2% over the three months to June, following a 2.2% decline for the three months to May. In the twelve months to June, the trimmed mean rose by 2.0%.
Excluding volatile items (automotive fuel, fruit and vegetables), the core inflation measure increased by 0.2% in June and was 2.5% above the level of a year ago.
Annette Beacher, Senior Strategist at TD Securities, believes the current persistent disinflationary trend in Australia must be a concern to the Reserve Bank with Beacher predicting inflation in Australia is likely to continue undershooting the RBA’s inflation target at least until mid-2008. Beacher says the RBA has a symmetric view of the inflation target, implying the Reserve Bank would regard an under-shoot of inflation as big a problem as an overshoot.
Co-creator of the gauge, professor Don Harding, is quoted in the official release as saying that, “On the basis of the June Inflation Gauge we see no reason to modify the forecast made last month in which the ABS June quarter CPI is expected to essentially remain unchanged rising by just 0.09 of one per cent, yielding an annual rate of inflation of 1.06 per cent.â€
“The RBA will be well satisfied with these numbers, there is enough evidence of core inflation to suggest that fears of deflation were overdone for Australia at least but there is insufficient evidence of emergent inflation to warrant consideration of tightening – yetâ€.