Soaring petrol prices fail to fuel inflation

MOTORISTS won’t be surprised to find petrol prices jumped 10 per cent in the runup to Christmas, but struggling households may find it difficult to believe other prices are in check.

The consumer price index rose 0.6 per cent in the final three months of 2017, smaller than some economists had been expecting.

This left the annual inflation rate at 1.9 per cent, up from 1.8 per cent previously, but still below the Reserve Bank’s 2 to 3 per cent inflation target band.

The more interest-rate sensitive measures of underlying inflation — which smooth out volatile price swings — were equally subdued, rising 0.4 per cent on average in the quarter, for 1.9 per cent over the year.

BIS Oxford Economics’ Head of Economics Australia Sarah Hunter said there was little sign of underlying inflationary pressures building up.

“Global inflationary pressures remain subdued, and al- though the [Australian] labour market had a spectacular 2017, wages growth is still very weak and likely to remain subdued for some time yet,” she said.

The Australian Bureau of Statistics said fuel prices led the list of most significant price rises in the quarter, rising 10.4 per cent, followed by fruit (up 9.3 per cent) and tobacco (up 8.5 per cent).

Prices for computer and telecommunication equipment, as well as international holiday travel, were key falls in the quarter.

Despite subdued price pressures overall, the strong employment readings over the past year raised economists’ expectations for a Reserve Bank interest rate hike by the end of the year.

The central bank will meet next Tuesday.

Commonwealth Bank economist Kristina Clifton said since the last board meeting in early December the economic data has largely come in on the stronger side.

“In particular, jobs growth remains very strong, which provides support for the view that wages growth will start to pick up gradually,” she said.

However, financial markets did pare back slightly on their expectations of a hike in the cash rate in November to around an 80 per cent chance from 100 per cent on the inflation data.

Ms Hunter did not expect a rate rise by the Reserve Bank until the end of 2019. “The economy is building momentum slowly, and they won’t want to risk derailing this,” she said.