Tame inflation despite energy price jump

Colin Brinsden, AAP Economics Correspondent
(Australian Associated Press)

A sharp rise in interest rates could force indebted households to sell their homes, Treasury boss John Fraser has warned a Senate committee.

But if the latest inflation reading is any indication any hike in the official cash rate is far from minds at the Reserve Bank.

Mr Fraser, who sits on the central bank board, wasn’t prepared to predict when interest rates would move.

“Possibly in the next 100 years interest rates will go up,” he quipped.

New figures on Wednesday showed annual inflation eased to 1.8 per cent in the year to September from 1.9 per cent, remaining below the central bank’s two to three per cent target band.

That was despite a near nine per cent jump in electricity prices which help lift the September-quarter consumer price index by 0.6 per cent in the quarter, tamer than economists had expected.

There was a large offset from declining food prices, with vegetables tumbling by nearly 11 per cent.

The more interest-rate sensitive measures of underlying inflation – which smooth out volatile price swings – were equally subdued.

Even so, Australian Chamber of Commerce and Industry chief economist Adam Carr says the rise in electricity prices is a worry leaving many businesses at “breaking point”.

“If Australia’s energy crisis is not solved soon we are going to see job losses and business closures,” he told AAP.

The warning came as new figures showed online job advertising has grown for 11 consecutive months to stand nearly seven per cent higher than a year ago.

Mr Fraser expects a period of stronger economic growth and falling unemployment will lift wages in the next few years, but he told the Senate hearing an immediate return to the pace of wages growth experienced previously can’t be assumed.

But he was encouraged by signs of a pick-up in wages growth in pockets of some major cities and regional centres.

“I don’t want to over-egg it but I think it is starting to pick-up a little,” he said.

The economic drag from falling mining investment had diminished, paving the way for a more balanced economic expansion.

While the global economy was also offering a positive backdrop, tensions on the Korean peninsula remained a source of uncertainty.

“The greatest impact we can have on our own circumstances will come from getting our own house in order,” Mr Fraser said.

“We can lead by example by remaining open to pursuing structural reforms that make our economy stronger and more flexible and ensuring our fiscal policy is credible.”


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