Australia | Nov 30 2009
By Rudi Filapek-Vandyck
The TD Securities-Melbourne Institute Monthly Inflation Gauge rose by 0.3% in November, following the 0.3% fall in October. The index had registered no change in September. In the twelve months to November, the Inflation Gauge rose by 2.1% and TD economists point out the index has now returned within the RBA’s 2 to 3% target band.
Contributing most to the increase were price rises for private motoring, fruit and vegetables, and household supplies. These price increases were offset by falls in prices for holiday travel and accommodation, and audio, visual and computing equipment. The fuel price rose by 3.7%. The economists note that excluding fuel the Inflation Gauge rose by 0.1% only.
Annette Beacher, Senior Strategist at TD Securities, suggests there are now early signs that price deceleration in Australia has bottomed out. She notes rent has picked up for the first time in nine months, while TD Securities’ trimmed inflation measure has increased after two consecutive months in decline.
TD Securities believes a cash rate of 3.5% is too accommodative for “an economy clearly outperforming global peers”. As prices appear to have stopped decelerating, the economists believe the RBA will lift the cash rate by another 25bp tomorrow to 3.75%. After that the RBA is expected to re-assess the impact of 75bp of tightening on confidence and activity when reconvening in early February 2010.
Co-creator of the inflation gauge, Professor Don Harding, however, believes the RBA will leave the cash rate unchanged tomorrow. He points out that, based on the data to November, the December quarter CPI is forecast to rise by 0.1%, which would yield an annual inflation rate of 1.7% in the four quarters to December.
Harding also believes overall price pressures in November remained subdued with prices rising in 28 expenditure groups and falling in 16 for a net balance of 12 rises.