Inflation to undershoot RBA target again

Marty Silk
(Australian Associated Press)


Rising costs for petrol, tobacco and even potatoes are expected to have lifted consumer prices in the December quarter but there’s still no sign of when inflation will rise into the Reserve Bank’s target band, economists say.

The Consumer Price Index (CPI) is expected to have risen 0.7 per cent in the December quarter for an annual rate of 1.7 per cent, according to an AAP survey of 14 economists.

Underlying inflation, which strips out the effects of volatile price movements, is forecast to have been 0.5 per cent in the quarter and 1.5 per cent over the year.

Both those annual forecasts sit below the central bank’s two to three per cent target band.

The annual inflation rate hasn’t been within the RBA’s target band since the September quarter of 2014.

ANZ senior economist Jo Masters said local consumer prices were likely being held down by price competition between retailers, weak wage growth and developments in the housing sector, particularly falling rents.

However, she said the December quarter inflation print was likely to provide policymakers with some comfort that inflationary pressures were starting to stabilise and that the strong disinflationary pulse over the past 18 months was starting to abate.

“That said, we do not expect a significant pickup in inflation this year but rather a stabilisation at low levels,” she said.

National Australia Bank economist Tapas Strickland, who is forecasting a solid 0.9 per cent rise in inflation for the quarter, said consumer prices should be boosted by vegetable, petrol and tobacco prices.

He said volatile fuel prices likely rose 6.0 per cent in quarter, while tobacco prices also likely rose 7.4 per cent after the federal tobacco excise was hiked by 12.5 per cent in September.

Mr Strickland also noted that vegetable prices likely rose by 8.9 per cent in the quarter, led by potato prices rising up to 70 per cent.

“While that stellar price rise for potatoes sounds extreme, your scribe can attest to sizeable price increases at his local supermarket and there were also widespread reports in October and November of potato shortages due to Australia’s second-wettest winter affecting harvesting in southern states,” he said.

The December inflation quarter data will be released on Wednesday by the Australian Bureau of Statistics.


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