Thursday, October 29, 2009
Briefing papers for next week's Reserve Bank board meeting, to be sent to members tonight, will note that despite the economic downturn the Bank's preferred measure of inflation stands at 3.5 per cent; well above its 2 - 3 per cent target and way above the 1.3 per cent annual headline figure highlighted by Treasurer Wayne Swan in an attempt to argue prices were contained.
In three months electricity prices have jumped 11 per cent, water and sewerage prices 14 per cent, bank fees 3 per cent and rents 2.9 per cent.
An analysis prepared by the Australian Bureau of Statistics suggests that without the restraining influence of low import prices Australia's 1 per cent quarterly rate of inflation would have been much higher...
The price of so-called tradables, which are imported or subject to import competition climbed a mere 0.2 per cent in the quarter.
But the price of domestically-produced services jumped 0.9 per cent and the price of domestically-produced goods not subject to import competition soared 2.6 per cent.
Australia's quarterly rate of inflation is now close to where it was when the Treasurer declared that in February 2008 that "the inflation genie is out of the bottle, it's been on the march for a couple of years".
The difference is that this time it has got there from a low base, having been negative when the economy turned down late last year.
At a parliamentary press conference yesterday Mr Swan played down the resurgence, saying that while the economy had improved in recent months, business investment was still weak and unemployment would continue to climb as the economy absorbed a big cut in national income.
While he "does not speculate about what the Reserve Bank will do" he pointed out that around half of the 1 per cent quarterly inflation rate was driven by "unusually large increases in utility prices" beyond the ability to Bank to influence.
"It’s a factor every September. Every September these prices show through. But the fact is this September they are bigger than they have been in the past, and in that sense it is a one-off which disguises a broad-based easing of inflationary pressures."
A decision by the Reserve Bank board to lift interest rates a further 0.25 percentage points Tuesday would push the standard variable mortgage rate above 6 per cent adding $45 to the monthly cost of servicing a $300,000 loan. A decision by the board to lift rates 0.50 points would add $92 to the monthly cost of servicing such a loan.
Westpac economist Bill Evans said no slowing in the underlying inflation trend combined with very strong language from the Reserve Bank made him rate a 50 point jump on Tuesday "a genuine prospect".
Skilled vacancy figures released by the Department of Employment Tuesday increased for the forth consecutive month, lending weight to arguments the economy is recovery quickly.
Published in today's SMH and Age
. Do you think the CPI is a joke?
. What's the damage?
. Why push up rates at all? - Argy