Monday July 6, 01:46 AM
Australia inflation gauge at 7-year low in June
SYDNEY, July 6 (Reuters) - A private gauge of Australian inflation on Monday showed a pick-up in June led by increases in petrol prices, but the annual pace of inflation still dipped to the lowest in nearly seven years.
The TD Securities-Melbourne Institute monthly inflation gauge rose 0.4 percent in June, reversing a 0.3 percent drop in May.
Annual inflation slowed to 1.4 percent in June, from 1.5 percent in May and 4.8 percent this time last year. That was the lowest annual pace since the series began in August 2002 and some way below the Reserve Bank of Australia's (RBA) long-term target band of 2 to 3 percent.
The subdued result suggested there was still scope for lower interest rates if needed, though analysts are confident the Reserve Bank of Australia (RBA) will chose to hold rates at 3.0 percent at its monthly policy meeting on Tuesday.
'The RBA Board meeting tomorrow will no doubt discuss the case for an immediate interest rate cut,' said Annette Beacher, a senior strategist at TD Securities.
'The RBA is placing a lot of faith in the momentum in China to drag Australia out of recession and this may see the RBA, yet again, defer the rate cut decision to the following month.'
A Reuters poll of 19 economists taken on Friday found all expected rates to stay at 3.0 percent for a third month. The cash rate was cut by a huge 425 basis points between September and April, helping support household incomes and consumption.
Contributing most to the overall change in the inflation gauge in June were price rises for private motoring, insurance services, and fruit and vegetables. The price of fuel rose by around 5 percent in June, although it remains 20 percent below its level of a year ago.
The price rises were offset by falls for books, newspapers, and magazines, alcoholic drinks, and meat and seafood. The price of rents was unchanged, after three consecutive monthly falls
The TD-MI's measure of underlying inflation, the trimmed mean, rose 0.1 percent in June, nudging the annual pace up to 2.0 percent, from 1.9 percent in May.
That was promising as the official measure of underlying inflation had been running at a stubbornly high 4.1 percent in the first quarter.
Its measure of core inflation, excluding volatile items like fuel and fruit, rose 0.2 percent. The annual pace eased to 2.5 percent, from 2.6 percent the month before.
The official measure of annual consumer price inflation (CPI (NYSE: CPY - news) ) had moderated sharply to 2.5 percent last quarter, and looked like slowing further this quarter.
Don Harding from the Melbourne Institute said that, based on the June inflation gauge, the official measure of CPI would likely rise by just 0.1 percent in the second quarter.
If so, annual inflation would slow to only 1.1 percent, well below the RBA's target band.
'The RBA will be well satisfied with these numbers,' said Harding. 'There is enough evidence of core inflation to suggest that fears of deflation were overdone for Australia at least, but there is insufficient evidence of emergent inflation to warrant consideration of tightening.'
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