ABS releases inflation data for the June quarter

Last week saw the Australian Bureau of Statistics release its official inflation figures for the June quarter.  And in the words of Tim Lawless in his RPData Research Blog, “I can’t recall a time when the quarterly CPI figure had been so eagerly anticipated.”  

As I’ve discussed in this blog before, the consumer price index is a key indicator that the Reserve Bank of Australia considers at its monthly meeting where interest rates are decided.  And with interest rates having been on hold at 4.75 per cent since November last year, each month people watch closely to see whether the Bank will move to either increase or cut the official cash rate.  The RBA has indicated in its statements over the past couple of months that the release of these inflation figures will be central to its August decision. 

The release of the CPI did not, unfortunately, sustain hopes for a rate cut, rising 0.9 per cent in the June quarter, which was a larger than expected increase.  This brings the annual inflation rate to 3.6 per cent, as compared with the 3.3 per cent seen in the March quarter. 

According to the ABS, the most significant price increases were for fruit, automotive fuel, hospital and medical services, deposit and loan facilities, and rents. 

The opinions of economists seen in the media surrounding the release of the figures largely support an expectation that there is quite a strong chance the RBA will need to lift rates to curb inflation, with some anticipating that a rise will occur before the end of the year. 

Will such a rate increase occur this week, when the RBA meets to set monetary policy for August? The opinions of the major economists are currently split as to how the RBA will act, given that the inflation figures have proven to be higher than what the Bank was predicting earlier in the year. 

In any case, the rise in inflation figures and a largely unified view that rates will likely rise before the end of the year (whether it be this month or later down the track), strengthens the need for mortgage holders to protect themselves from the increased interest payments that such a rise would bring.  A prudent move could be to start studying the household budget and analyse where savings can be made starting now – any extra funds put aside could certainly prove to be very convenient if rates do go up. 

Posted by Charles Tarbey on 01/08/2011 at 9:17 AM | Categories:

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