Contrasting Inflation Trends For Australia

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By Rudi Filapek-Vandyck

The TD Securities – Melbourne Institute Monthly Inflation Gauge rose by 0.3% in April, following a 0.6% rise in March and a 0.2% rise in February. In the twelve months to April, the Inflation Gauge rose by 3.6%, following a 3.8% rise for the twelve months to March.

The economists report contributing most to the overall change in April was a seasonal price rise for health services, as well as increases in overseas holiday travel and accommodation prices, and a small rise in automotive fuel. These were offset by a substantial fall in fruit and vegetable prices, and smaller falls in audio, visual and computing, and household supplies. The price of fruit and vegetables slumped by 12% in April, following the 11.3% rise in March. The price of rent rose 1.2% in April, the highest monthly increase recorded since January 2009.

The trimmed mean of the Inflation Gauge rose by 0.2% in April, following a 0.3% rise in March. In the twelve months to April, the trimmed mean rose by 2.3%, the lowest annual increase in seven months.

According to Annette Beacher, Head of Asia-Pacific Research at TD Securities, the TD Securities-Melbourne Institute Inflation Gauge continues to tell a tale of contrasting inflation trends. Headline inflation is printing uncomfortably close to 4%, Beacher points out, while
underlying inflation continues to decelerate, and at 2.3%t is the lowest annual level since September last year.

TD Securities expect the RBA Board tomorrow to again signal that it can comfortably remain on the sidelines for several months to assess the impact of various natural and geopolitical risks buffeting global and local economic activity. But as the RBA are mindful of building global inflationary pressure as well as upside risks to domestic inflation next year, TD Securities maintains its mid-2012 cash rate target at 5.75%.

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