Inflation rise won’t trigger rate rise: Economy roundup

Inflation lifted 1.5% in the June 2008 quarter, a result that is at the high end of market expectations and that suggests the prospect of an interest rate cut remains some way off.

Inflation lifted 1.5% in the June 2008 quarter, a result that is at the high end of market expectations and that suggests the prospect of an interest rate cut remains some way off.

The headline 1.5% quarterly rise equates to a 17-year high annual inflation rate of 4.5%. Core inflation, the figure the Reserve Bank of Australia looks at most closely, lifted by 1.1% for the quarter and 4.4% for the year.

A 3.1% rise in transport costs was a big contributor to inflation in the three months to June, with the fuel component up a whopping 8.7%.

But increased finance costs was the single biggest inflationary factor, with the cost of deposit and loan facilities – in short, interest repayments and bank fees – up 9.5%.

Households in Brisbane and Perth experienced the biggest price rises, with prices in those cities up 1.7% and 1.6% respectively. Prices in Melbourne (up 1.2%) and Hobart (up 1%) increased the least.

RBA Governor Glenn Steven said last week that he did not expect the June CPI data to show inflation pressures in the economy are easing, so today’s figure in isolation is unlikely to trigger an official interest rate rise.

What it does do, however, is set back expectations that were beginning to emerge in the market that we might see an interest rate cut in the next few months. With annual CPI at 4.4% – well above the 2% to 3% target band – controlling inflation, not stimulating growth, will continue to be the RBA’s key concern.

On the markets today, support for financial and consumer stocks has seen the S&P/ASX200 rise 1.6% on yesterday’s close to 5086.0 at 12.15pm. The Australian dollar is trading at US97.6c.

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