Figures defy expectations

THE inflation figures released this week surprised analysts and economists and, no doubt, Treasury.

The boffins at Treasury expected the GST-induced price rises would cause the CPI to rise by 4.5 per cent, while economists expected the rise would be closer to 4.2 per cent.

The figure of 3.7 per cent surprised everyone except the most optimistic analysts.

Year on year the inflation figure was 6.1 per cent, a low figure given the prospect that the GST, rising fuel prices and the low Australian dollar were contributing to the possibility of a huge blowout in the rate of inflation.

To achieve such a low figure given these factors was a very creditable performance by the Australian economy.

The important factor from the figures is that the price rises that were foreshadowed by the GST have been very closely policed by the ACCC. Business has absorbed the price rises.

The next figure that could affect the future inflation outlook was the Average Weekly Ordinary Time Earnings (AWOTE) Growth. The market expected a rate of growth of around four per cent to 4.5 per cent, but it came in at 5.9 per cent.

This is a figure that the market is unlikely to take within its stride.

While we have a low inflation rate as per the CPI figures, this is completely offset by the extraordinarily large wages growth figure.

This could pressure the Reserve Bank of Australia to consider the possibility of a rate rise this month.

Coincidentally, the next RBA meeting falls on Melbourne Cup day. No doubt there will be as much speculation about the direction of interest rates as there will be about the winner of the cup.

A number of economists are suggesting that the wages growth figures are an aberration and that all the other indicators of wages growth such as the HSBC index are indicating a growth of the order that the RBA will accept without too much difficulty.

These economists are suggesting that the September figure can quite correctly be ignored and that the RBA should not be raising rates on the basis of that figure alone.

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