22/10/2008 - 09:10

Inflation rises, rate cut still on cards

22/10/2008 - 09:10

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Perth has recorded the smallest increase in the rate of inflation over the September quarter, while the nation's headline inflation consumer price index rose at its fastest pace in almost 13 years.

Inflation rises, rate cut still on cards

Perth has recorded the smallest increase in the rate of inflation over the September quarter, while the nation's headline inflation consumer price index rose at its fastest pace in almost 13 years.

According to latest statistics from the Australian Bureau of Statistics, the inflation rate in Perth rose 1 per cent over the September quarter, taking the annual inflation figure to 4.9 per cent.

Nationally, the timmed mean CPI rose 1.2 per cent over the three months to the end of September, for an annual growth rate of 5 per cent.

Economists said even though the CPI recorded its biggest rise since 1995, it is unlikely to deter the Reserve Bank of Australia from continuing its recent run of monetary policy easing.

In terms of monetary policy, the RBA's focus is on the underlying measures of inflation - the weighted median and the trimmed mean - which exclude volatile prices from CPI calculations.

The average of the two measures rose 1.25 per cent in the September quarter, for an annual pace of 4.7 per cent.

CommSec chief equities economist Craig James said the September quarter CPI would be the "peak for inflation in this cycle".

Mr James said the data would not stand in the way of the RBA lowering interest rates further in the months ahead, starting with a cut of "at least" 50 basis points next month.

"With the likelihood that inflation will come down, and perhaps quite significantly, over 2009, it can certainly take it foot off the brake to some extent," Mr James said.

The RBA cut the cash rate by 100 basis points, or one percentage point, at its October meeting.

The RBA said in the minutes of its October board meeting, released yesterday, September quarter CPI "was likely to show an increase of around five per cent over the year".

CPI excluding housing and financial and insurance services rose 0.7 per cent in the September quarter for an annual pace of 3.8 per cent.

Mr James said the global financial crisis was a special factor which had pushed inflation higher, but he expected the contribution to CPI of the financial services component to diminish in the months ahead.

"We do know that funding pressures for banks are easing and we are going to see that component of that CPI actually moving the other way," Mr James said.

"It will be a positive element driving inflation lower over 2009.

"If you had 0.7 per cent each quarter, you'd be back into that target band very, very quickly."

Housing increased 2.6 per cent in the quarter for an annual pace of 6.8 per cent, led by rents and water and sewerage charges and house purchase costs.

The cost of financial and insurance services rose 1.7 per cent in the quarter and 9.5 per cent over the year.

 

 

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