Australian inflation flatlined in June after a 0.4% rise in April and 0.3% rise in May June with no price increases in the TD Securites – Melbourne Institute Monthly Inflation Gauge during the month.
According to Annette Beacher, Head of Asia-Pacific Research at TD Securities, this month’s flat result still kicked the year on year rate a little higher to 3% from the previous month’s 2.9%.
Beacher reckons that even with this month’s benign result inflation will remain elevated:
With this June report we have finalised our June quarter CPI forecasts. We expect headline inflation to increase by 0.7 per cent in the quarter, to be 3.2 per cent higher than a year ago, while we forecast underlying inflation to also increase by 0.7 per cent in the quarter, for an annual rate of 2.75 per cent. We expect underlying inflation to remain in the top half of the RBA’s 2-3 per cent target band and could remain elevated closer to 3% given the clear signal from our gauge that inflation remains sticky.
The impact of this data on the RBA’s Board meeting and interest rate decision tomorrow according to Beacher is negligible although she does believe that:
Even if Q2 CPI exceeds the top end of the RBA’s band, it appears that it, like the Fed is willing to run the risk of higher inflation before it acts, hence why we pushed our call for the 1st RBA hike to Q1 2015. For now expect the RBA to echo ‘a period of stability in interest rates.