Poll rate rise threat eases

July 28, 2010

JULIA Gillard, Wayne Swan - and anyone with a mortgage - can breathe a sigh of relief, with a mid-campaign rate rise now unlikely after official data showed prices rising more slowly than expected.

The June quarter Consumer Price Index, released by the Australian Bureau of Statistics at 11.30am, showed the cost of living increased 0.6 per cent in the last three months of the financial year.

Economists had been expecting an increase of 1 per cent.

The measure the RBA was watching to determine whether to raise rates next week also came in on the low side - up 0.5 per cent against expectations of 0.7 per cent.

That keeps the underlying annual inflation rate within the RBA's 2-3 per cent, which makes it less likely the central bank will lift rates when its board meets on Tuesday.

A rate rise during the election campaign would have been devastating to Labor's claims of being a credible economic manager. An August rise would have been the seventh since last October.

It means that the Bank will most likely leave policy unchanged at the August board meeting,” said ANZ’s head of economics and interest rates research, Warren Hogan.

 The most significant price rises this quarter were for tobacco (+15.4%) after the excise hike, as well as hospital and medical services (+3.8%), plus automotive fuel (+2.1%) and rents (+1.1%).

 The most significant offsetting price falls were for domestic holiday travel and accommodation (–6.0%), fruit (–4.8%), audio, visual and computing equipment (–6.3%), vegetables (–3.0%), and overseas holiday travel and accommodation (–1.9%).

With an election upon us and inflation moderating nicely there is zero argument for, or chance of, a rate rise in the medium term,” said Clifford Bennett, head of Herston Economics, who was the only prominent economist who correctly predicted the RBA wouldn’t raise rates in
February.

 Telegraph