Low inflation curbs rates

INFLATION has again undershot expectations and is likely to keep the Reserve Bank sidelined on interest rates for some time yet.

The consumer price index rose 0.4 per cent in the three months to June, official figures released yesterday said.

That was short of market expectations for a 0.5 per cent rise and in line with the first quarter figure of 0.4 per cent.

The annual headline rate was 2.1 per cent, below market expectations for a 2.3 per cent rise and at the bottom end of the RBA’s target range of 2 to 3 per cent.

AMP Capital chief economist Shane Oliver said a rise in the official cash rate from its record low of 1.5 per cent was unlikely before 2020, in stark contrast to the expected gradual rate rises in the US. He said the RBA’s next move could even be a cut.

CommSec senior economist Ryan Felsman agreed the RBA would not move the cash rate “any time soon”.

The biggest inflation rise in the quarter was in the health sector, where prices climbed 1.9 per cent due to rising costs for private health insurance, the Australian Bureau of Statistics figures showed.

Transport prices rose 1.6 per cent on the back of higher fuel prices, while alcohol and tobacco prices were also up 1.6 per cent.

The biggest fall in prices was in the communication sector, with a 1.3 per cent drop as consumers shift from traditional services to mobile.