An even larger wave of monthly inflation has hit down under. Australia just recorded the eighth consecutive month of accelerating inflation in June.
The TD-Securities/Melbourne Institute inflation gauge rose 0.3 per cent in June for an annual reading of 3.6 per cent, after the prices of food, travel and insurance services rose.
The annual reading is well above the RBA’s target range for inflation between 2 and 3 per cent over the long term.
”This June update offers scant relief,” TD securities senior strategist Annette Beacher said.
”Every measure of inflation in this report, be it headline, trimmed mean or excluding volatile items, is printing well above the upper tolerance level of the RBA’s 2 to 3 per cent inflation target band,” Ms Beacher said. ”Uncomfortably high inflation should not be particularly surprising since the Australian economy is all-but fully employed, a situation that is likely to remain for quite some time.”
Here’s the latest TD inflation chart, note how it leads Australia’s CPI releases:
Yet at the same time, the central bank aborted/delayed its rising interest rate cycle a month back due to concerns about the strength of its economy. Some had even speculated that Australia might soon deliver and interest rate cut in order to support the current recovery.
Now the chances of that are next to nothing, says TD’s strategist Roland Randall:
Next to no chance of RBA easing monetary policy tomorrow
If credit markets were to seize up then yes, the RBA would act. But although credit conditions have tightened they are still a long way from a re-run of 2008.
RBA will be on hold tomorrow – no incentive for them to raise rates at the moment. They have done enough for now and we are seeing that in the partial indicators that are beginning to top out (business and consumer confidence, retail credit markets, housing market and labour market).
I’d say there’s now room for a hike. Australian unemployment is low by current global standards, at just 5.2%. Inflation might be the worse enemy, given the 8-month acceleration shown above, even if a higher key interest rate increases mortgage payments for homeowners.
(Chart and excerpt via TD Securities, The Australian Interest Rate Debate, Roland Randall, 5 July 2010)
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