Australia | Nov 01 2010
By Rudi Filapek-Vandyck
Have we seen the low point for inflation in Australia? TD Securities' Annette Beacher (Senior Strategist, Fixed Income and Foreign Exchange) is suggesting as much this morning as the TD Securities monthly inflation gauge has printed a 0.3% gain for October, suggesting contained but nevertheless rising inflationary pressures.
Beacher also suggests it is probably prudent to await the outcome of next month's reading before drawing any firm conclusions.
Regardless, comments Beacher, “The RBA is clearly poised to lift the cash rate from the currently neutral stance of 4.5%, with recent speeches and the October RBA Board meeting minutes suggesting another upward adjustment in the coming months. However, as the benign September quarter inflation report failed to provide a smoking gun, we expect the RBA Board to sit tight at 4.50% tomorrow”.
TD Securities is targeting a core inflation of 3.50% by late 2011 and this supports the forecast of another 100 basis points in RBA hikes over the next twelve months. This would take the official cash rate to 5.50% and, points points out Beacher, it would also lend support to the AUD for longer.
The October rise follows a 0.1% rise in September and a 0.2% rise in August. In the twelve months to October, the Inflation Gauge rose by 3.8%, a high outcome that is partly due to unfavourable base effects arising from the 0.3% decline in October 2009, reports TD Securities.
Contributing most to the overall change in October were price rises for automotive fuel, fruit and vegetables, and insurance services. These were offset by falls in prices for audio, visual and computing equipment, non-alcoholic drinks and snack food, and alcoholic drinks. The price of automotive fuel increased by 4.6% in October, reversing the 4.4% price fall recorded in September.
The trimmed mean of the Inflation Gauge rose by 0.2% in October, after flat readings in August and September, to be 3.1% higher than a year ago. As with the headline measure, TD Securities reports there are base effects partly to blame for the high annual growth rate, as the trimmed mean measure fell 0.3% in October 2009.