Bread, papers up, fruit, fuel down – inflation gauge slips 0.1%

December 3, 2012
The Age

A private gauge of inflation has eased, while measures of core inflation stayed benign, an outcome that is unlikely to stand in the way of any interest rate cut this week.

The TD Securities-Melbourne Institute’s measure of consumer prices slipped 0.1 per cent in November, reversing a 0.1 per cent rise in October. The annual pace of inflation edged up to 2.5 per cent from 2.4 per cent, right in the middle of the Reserve Bank of Australia’s (RBA) 2-3 per cent target band.

Price rises for bread and cereal products, newspapers, books and stationery, and dairy products were offset by falls in fruit and vegetables, automotive fuel, and holiday travel and accommodation, the survey showed.

The trimmed mean measure of inflation was flat in November, while the annual pace quickened to 2.4 per cent from 2.1 per cent.

Using mid-quarter prices, the TD-MI inflation gauge should show a rise 0.2 per cent in the December quarter, with a similar increase as well for the trimmed mean measure. This should generate annual inflation of around 2.5 per cent, the report said.

The RBA holds a policy meeting tomorrow and the majority of economists polled by Reuters expect a quarter-point cut in the cash rate to 3.0 per cent, equalling a record low set during the global financial crisis.

Financial markets have priced in a 70 per cent chance of a cut following data last week showing a downward revision to business spending plans for the fiscal year ending June 2013.

TD’s head of Asia-Pacific Research, Annette Beacher said underlying inflation will continue to remain close to the mid-point of the RBA’s target, yet she believed the RBA will probably hold rates steady this week.

“Better global activity data continues to trickle through, especially from the United States and China, while underlying inflation appears set to remain mid-target, well away from the bottom of the range,” she said.

“While it is appropriate to leave an easing bias on the table, we cannot identify a smoking gun for a near-term policy adjustment.”
Reuters, AAP

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