Australia | May 31 2010
By Greg Peel
According to the TD Securities-Melbourne Institute independent monthly inflation gauge, Australian headline inflation rose by 0.5% in March, 0.4% in April and now 0.5% again in May. This represents seven consecutive month of increase, being the longest run in two years. Annual headline inflation rose to 3.7%, the highest level since October 2008.
However, if you take out the sudden 25% increase in tobacco tax which was implemented in May, the headline jump was only 0.1%, suggesting a 3.3% annual rate.
Either of these annual number is still above the RBA's 2-3% inflation comfort zone, but the RBA does not use headline inflation as its preferred measure. The central bank calculates a trimmed mean of inflation on a quarterly basis.
The TDS-MI gauge nevertheless makes this calculation monthly as well, and it rose by 0.4% in May to 3.5% annual. So which ever way you look at it, the trailing inflation rate is above the RBA's comfort zone. This might otherwise suggest RBA rate hikes, but then that's what the RBA has been doing over the period. It will now remain on hold as it watches the lagged flow-on effect.
Given weak retail sales numbers for March and the rate hikes in between, Thursday's release of the April retail sales data will be telling. Falling consumer demand will ultimately help to curb price inflation.