Australia | Oct 04 2010
By Rudi Filapek-Vandyck
The TD Securities-Melbourne Institute Monthly Inflation Gauge rose by 0.1% in September, following a 0.2% in August and a 0.1% rise in July, indicating Australia is not facing an inflation problem at this stage.
The economists point out in the twelve months to September, the Inflation Gauge has now risen by 3.2%, slightly above the upper limit of the RBA’s two to three percent target band.
However, the trimmed mean of the Inflation Gauge was unchanged again in September, to be 2.3 % higher than a year earlier; this is below the mid-point of the RBA’s target band.
TD Securities does not forecast inflation to be a concern until the second half of next year, as a lagged response to shrinking capacity constraints in the capital and labour markets.
TD Securities also believes tomorrow’s RBA Board decision remains a very close call. TD Securities believes the low starting point for inflation is not a trigger for the RBA Board right now. However, ongoing hawkish rhetoric from senior RBA staff members has placed the markets on notice, and so TD Securities suggests the RBA should follow up the rhetoric with a 25 basis point tightening after tomorrow’s Board meeting, and then start its Christmas vacation early.
TD Securities also expects that if the RBA hikes tomorrow, Australian banks will lift the variable mortgage rate by “considerably more” than the 25 basis point increase in the cash rate.
