Inflation rate lowest in 13 years - vegetables up, consumer electronics down

Australia's inflation rate fell to the lowest level in 13 years, giving the central bank scope to cut interest rates further if the economy deteriorates and workers struggling with cost of living pressures a reason to be happy.

The consumer price index rose only 1.2 per cent in the year to June, which was in line with what economists expected but also the lowest yearly inflation rate since consumer prices grew 1.1 per cent in the year to June 1999.

Price pressures picked up a little in more recent months, however. Over the June quarter prices grew 0.5 per cent, as the falling Australian dollar pushed up the cost of imported furnishings, household equipment, clothing and footwear by 1.5 per cent. Rents increased 1.1 per cent.

The biggest falls in prices over the quarter occurred in cakes and biscuits, holiday accommodation, and audio and visual equipment.

Although the headline pace of price growth was very subdued, the Reserve Bank of Australia’s preferred measure of inflation, which abstracts from volatile price movements, grew by 2 per cent in the year to June, which is at the bottom of the Reserve Bank’s inflation target of between 2 and 3 per cent.

The latest official forecast from the RBA, in May,  was for annual inflation of 1.75 per cent for the year to June 2012.

CommSec economist Savanth Sebastian said that today's reading gave scope for another rate cut from the RBA.

"Even if you look at all the underlying measures, it suggests that inflation is well and truly contained,'' he said.

However, Mr Sebastian said the RBA would not be likely to cut at its next meeting in August, but would look to further domestic data for guidance.

HSBC chief economist Paul Bloxham said that global events would also have a significant impact on the RBA's decision.

"It certainly looks as if the RBA has room to move (the cash rate from its current level of 3.5 per cent) if it has to, but we also know they seem to have a bit of patience at the moment. The timing of the next move will depend a lot on what happens globally," he said.

The Australian dollar was a tad higher at $US1.0201, from $US1.0191 immediately before the CPI announcement.

The rise in consumer prices was felt fairly consistently across Australia’s capital cities except in Darwin, where they jumped almost 1 per cent, and Hobart, where they declined almost half a percentage point. 

Source:  http://www.theaustralian.com.au/business/economics/australian-cpi-rises-less-than-expected-in-q2/story-e6frg926-1226434649837