(July 26, 2010)

Australia's producer price index at the final stage of production rose 0.3 per cent in the June quarter, less than economists had predicted.

The June tally brought the annual rate of increases in producer prices to 1 per cent, the Australian Bureau of Statistics said. The annual pace matched the level recorded for the March quarter.

Producer prices are just one component of the overall inflation gauge that the Reserve Bank will use in deciding whether to raise interest rates again when its board meets on August 3. Before then, the central bank will also have the consumer price index to add to its number crunching, with those figures due out on Wednesday.

Even so, today's numbers may increase the likelihood that the RBA will leave rates on hold at next week's board meeting. Economists had been tipping that producer prices would rise 0.8 per cent for the June quarter for an annual pace of 1.5 per cent.

Prior to today's PPI figures, investors were rating the probability of an August rate rise by the RBA at a one-in-three chance. After the release, the probably fell to a one-in-four chance, according to Credit Suisse.

The Australian dollar also fell after the PPI release, dropping from about 89.8 US cents to 89.6 US cents in recent trading.

In the June quarter, at the intermediate stage, the PPI rose 0.9 per cent, while at the preliminary stage it rose 1.5 per cent.

Over the year to June, at the intermediate stage the PPI rose 0.6 per cent and at the preliminary stage it rose 1.2 per cent.

(Source from:theage)