-Michael Blythe, chief economist at the Commonwealth Bank of Australia
Consumer prices in Australia declined in the third quarter, with a corresponding inflation gauge falling back to a comfortable level in the middle of the Reserve Bank of Australia's 2-3% target range, providing the central bank with ample room to keep interest rates on hold for longer. Official data by the Bureau of Statistics showed consumer inflation gained 0.5% in the three months through September and slowed to 2.3% from 3% in the previous year. Core inflation, which is intended to strip out the more volatile components of headline inflation, rose by an average of 0.5% in the third quarter from the previous three-month period, in line with analysts' expectations. The most significant price increases last quarter included a 14.7% jump in fruit prices, a 1.1% climb in new house prices, and a 6.3% advance in property rates and charges. However, price drops in electricity and fuel offset those price increases, as the components declined 5.1% and 2.5%, respectively. Soft economic performance has helped keep inflationary pressures contained over the past couple of years, and are seen to do so for some time. However, recent depreciation in the Aussie Dollar should boost inflation by increasing import costs, though this usually happens with a time lag. The RBA's outlook is that sluggish wage growth should keep inflation consistent with the target even with lower levels of the nation's Dollar, according to the central bank's policy statement on October 7.
© Dukascopy Bank SA