Inflation set to be ‘stable’

All eyes on RBA ahead of February monetary policy meeting

AUSTRALIA’S inflation levels are expected to record only a modest rise today, but it may not influence the Reserve Bank’s rates decision.

Analysts have tipped about a 0.6 per cent increase to headline inflation for the fourth quarter, and 1.7 per cent year on year, when the Australian Bureau of Statistics data is released.

Drought-related effects on food supply, fuel and the tobacco excise increase are expected to be the main drivers.

Royal Bank of Canada’s head of Australian and New Zealand strategy Su-lin Ong ( pictured) expected the annual inflation rate would be stable at 1.4 per cent, but this would disappoint the Reserve Bank of Australia (RBA), which prefers annual inflation to be 2 per cent to 3 per cent.

Its board is due to consider rates on February 4, and until recently had been widely tipped to cut the cash rate amid a sluggish economy. However a slight improvement in employment figures – as seen by Australian Bureau of Statistics data released last week – may lead the board to postpone a cut.

Ms Ong said: “We think that the recent labour market data (is) probably enough to stay the RBA’S hand.”

JP Morgan Australia economists think differently.

They believe rates will be cut next week, and expect inflation figures will be higher – a 0.7 per cent quarterly increase and 1.9 per cent year on year.

However JP Morgan economist Tom Kennedy said these results would not really affect the rates decision.

“Inflation is important, but it hasn’t been the factor that has dictated policy in the last year,” he said. “What has been important has been the job numbers. Have they seen enough improvement?”

Data released last week showed the unemployment rate fell to 5.1 per cent in December, down from 5.2 per cent in November.

Many economists had been predicting a rise in the rate to 5.3 per cent.

This prediction had experts saying that Australia’s cash rate would be cut in February to a record 0.5 per cent.

But the unemployment figures seemed to decrease the odds of this happening.