Inflation dips in August as RBA decision looms

Inflation fell 0.1 percent in August after rising 0.3 percent in July, with sliding prices of fruit and vegetables more than offsetting price rises for private motoring, furniture and furnishings, and household services.

According to The TD Securities – Melbourne Institute Monthly Inflation Gauge, in the 12 months to August, the Inflation Gauge rose by 2.9 percent, following a 3.2 percent rise for the twelve months to July.

Despite rises in prices for private motoring, furniture and furnishings, and household services, the prices of fruit and vegetables fell by 1.6 percent in August.

According to TD Securities Head of Asia Pacific Research Annette Beacher, for the September quarter (using mid-quarter prices now available) headline inflation rose 0.3 percent to be 3 percent higher than a year ago.

“We will publish our official September quarter CPI forecasts with our September Inflation Gauge report … but the signal from our Inflation Gauge so far is that the acceleration in prices evident in the first half of this year may have taken a breather in the September quarter.”

Beacher said that whilst GDP growth faltered in Q1, second quarter GDP will likely reverse this weakness. Also, there’s been confirmation the outsized resource-led private investment boom is on track and productivity remains weak, which means inflation pressure remain firmly tilted upwards for 2012.

“In the near term, for the RBA Board meeting tomorrow, we expect little diversion from previous themes. The RBA Board is in the enviable position of being able to watch and observe from the sidelines for some time to digest the implications of the domestic two-speed economy, and assess the implications, if any, of recent outsized volatility in global financial markets.”

The RBA will meet in Sydney tomorrow to decide whether to rise interest rates. The board held rates at 4.75 percent last month, citing slow growth of the global economy and continued economic volatility in Europe and the US as drivers behind its decision.

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