Interpac Business and Migration Solutions Melbourne Australia

(September 6, 2010)

AN estimate of consumer inflation rose 0.2 per cent in August, but the pressure is not expected to move the RBA to lift rates this year.

The rise in the inflation gauge marked the 10th consecutive monthly increase, according to a report by TD Securities and the Melbourne Institute issued today.

The inflation gauge increase last month followed a 0.1 per cent rise in July and a 0.3 per cent lift in June, the TD-MI survey showed.

Over the year to August, the gauge rose 3 per cent, right at the upper end of the Reserve Bank of Australia's 2-3 per cent target band.

In trimmed mean terms, the gauge was unchanged in August, after rising 0.1 per cent in July and gaining 2.3 per cent from a year earlier.

Despite the continued threat of price pressures, Annette Beacher, senior strategist at TD Securities, said inflation pressures haven't moved enough to change her views on monetary policy from the RBA.

“The inflation gauge is telling us that the mid-year return to trend GDP growth, the income surge arising from the terms of trade boom and ongoing tight labour market are yet to translate into worrisome price pressures,” said Ms Beacher. “In fact, annual underlying inflation is more or less at the mid-point of the Reserve Bank's inflation target band so far for the September quarter.”

Ms Beacher predicted the RBA would “sit tight” for the rest of the year, citing a return to average mortgage lending rates. The cash rate is now 4.5 per cent.

To be sure, risks are growing that the RBA will raise interest rates again once it sees the next quarterly batch of inflation data, at the end of October, economists say.

In the middle of last week, Australia's second-quarter GDP figures showed the economy grew at its fastest quarterly pace in three years as a recovery in household spending and a mining boom spurred activity.

Financial markets have since moved to price in only a slight chance of a rate cut from the RBA in coming months, after global economic worries had tipped expectations higher in the last few weeks. Ms Beacher added she believes market pricing still has a way to go.

“We believe that current bill-strip market pricing of a material risk of the RBA lowering the cash (rate) is somewhat misguided,” she said.

(Source from:theAustralian)