TD Securities-Melbourne Institute: Australian Inflation Rises 1.5%

Inflation in Australia remains well below the Reserve Bank’s target but interest rates are not expected to be cut this week.  Inflation was 1.5 per cent in the 12 months to June, up from an annual rate of 1.4 per cent in May, according to the TD Securities-Melbourne Institute monthly inflation gauge.

However TD rates strategist Prashant Newnaha predicts the Australian Bureau of Statistics’ official underlying inflation for the June quarter — which strips out wild price swings — will be at an acceptable annual rate of 2.2 per cent.  The RBA’s target range is inflation of two to three per cent.  Mr Newnaha said he did not expect the RBA to move the two per cent cash rate at Tuesday’s monthly meeting, saying deflation fears had passed and a bounce in consumer prices in July was likely after a seasonally slow June.

“However as we expect weak data reports in the weeks and months ahead, the next move is more likely to be down than up, a factor that will be supportive of the RBA’s call for a lower Australian dollar,” he said.  Falls in the price of holiday travel and accommodation, newspapers, books and stationery, and furniture and furnishings weighed on inflation in June.

The Australian