Australian Economy

Australian inflation gauge stays tame in June: TDMI

PUBLISHED : Monday, 01 July, 2013, 1:56pm
UPDATED : Monday, 01 July, 2013, 2:06pm

A private gauge of Australian inflation showed few signs of any acceleration in price pressures in June, suggesting inflation alone would be no bar to a further cut in interest rates if needed.

The TD Securities-Melbourne Institute’s measure of consumer prices was unchanged in June, from May when it increased by 0.2 per cent.

That saw the annual pace of inflation creep up to 2.4 per cent, from 2.2 per cent, still comfortably within the Reserve Bank of Australia’s (RBA) target band of 2 to 3 per cent.

The central bank holds its monthly policy meeting on Tuesday, and is widely expected to keep its cash rate steady at a record low 2.75 per cent, following a cut in May.

“We expect the RBA Board meeting to be a lively one, debating the impact of the US Federal Reserve tapering bond purchases by year end and making sense of the mixed signals from the domestic economy,” TD’s head of Asia-Pacific Research, Annette Beacher said.

“We expect the cash rate to remain unchanged at the record low of 2.75 per cent, a clear easing bias to be voiced, and the recent fall in the Australian dollar to be welcomed.”

The Australian dollar hit a three-year low of $0.9110 on Monday as the prospect of an eventual slowdown in US stimulus lifted the US dollar across the board.

The RBA has long complained that the local currency was too high given falling prices for many of Australia’s major commodity exports. Its decline relieves competitive stress on manufacturing while essentially easing financial conditions.

“If the AUD continues to trade closer to $0.90 than parity, we believe the risk of additional RBA easing falls to well below 50 per cent,” added Beacher.

The market implies only a one-in-five chance of a cut in rates this week, but does have a move to 2.5 per cent priced in by October.

Monday’s inflation gauge suggested there was room to move if necessary. The trimmed mean measure of underlying inflation fell 0.2 per cent in June, while the annual pace ran at 2.3 per cent.

Excluding the volatile petrol, fruit and vegetables items, the inflation gauge dipped 0.1 per cent to be up just 1.8 per cent for the year.

The survey found price increases for fuel, holiday travel and accommodation, and new dwelling purchase by owner-occupiers.

Those were offset by falls in fruit and vegetables, furniture and furnishings, and footwear.

The survey showed price increases in 17 of its expenditure classes, while 32 fell and 38 were unchanged.