Get set: rate rise that stops a nation
By Peter Martin, Economics Correspondent | smh.com.au | 29 October
A Melbourne Cup Day rate rise is a certainty after September quarter figures showed inflation is stubbornly high and growing, restrained only by weak conditions overseas and the soaring dollar.
Briefing papers for next week's Reserve Bank board meeting, to be sent to members tonight, will note that despite the economic downturn inflation that using the the bank's preferred measure inflation stands at 3.5 per cent.
This is well above its 2 to 3 per cent target and much higher than the 1.3 per cent annual headline figure highlighted by the Treasurer, Wayne Swan, in an attempt to argue prices were under control.
In three months, electricity prices have risen 11 per cent, water and sewerage charges 14 per cent, bank fees 3 per cent and rents by 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 tradeables, 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 rose 0.9 per cent and the price of domestically produced goods not subject to import competition soared 2.6 per cent.
The quarterly rate of inflation is now close to where it was when the Treasurer declared 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.
Mr Swan played down the resurgence yesterday, saying that while the economy had improved in recent months, business investment was still weak and unemployment would continue to rise 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 of the 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 by 25 percentage points on Tuesday would push the standard variable mortgage rate above 6 per cent, adding $45 to the monthly cost of servicing a $300,000 loan.
An increase of 50 points would add $92 to the cost of the loan. The Westpac economist Bill Evans said the fact there was no slowing in the underlying inflation trend combined with strong language from the Reserve Bank made him consider a 50-point rise "a genuine prospect".
Skilled vacancy figures released by the Department of Employment yesterday increased for the fourth consecutive month, lending weight to arguments the economy is recovering quickly.
Going up, going down
Consumer price index, September quarter
Electricity 11%
Water, sewerage 14%
Fuel 4%
Bank fees 3%
Fruit, vegetables -5.50%
Pharmaceuticals -4%
Electronics -2%
First published by Smh.com.au on October 29 2009
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