Rba Data To Show Rate Rise Risk
The Age
Wednesday January 24, 2007
THE Reserve Bank's two most important gauges of inflation to be released today are expected to exceed the central bank's target range, increasing the risk of another interest rate rise.
The two measures, based on consumer prices, are expected to come in above 3 per cent for the first time in almost five years, illustrating the continuing build-up of inflationary pressure in the economy.Also out this morning will be the December-quarter consumer price index from the Australian Bureau of Statistics. The consensus among economists is for the so-called headline rate of inflation to fall from 3.9 per cent at the end of September to 3.6 per cent by the end of 2006, driven lower by cheaper petrol and fruit.The Reserve Bank's underlying measures of inflation, known as the trimmed mean and weighted median, are tipped to come in at 3.1 per cent and 3.2 per cent respectively, above the central bank's 3 per cent target range, according to a Bloomberg survey.Economists said that a reading that reached only slightly above the RBA's band would not automatically trigger another interest rate rise.But financial markets have priced in a 42 per cent chance of another rate increase by March. Economists roughly rate such a move a 50:50 chance.The Victorian Employers Chamber of Commerce and Industry's chief economist, Steven Wojtkiw, said the Reserve Bank should wait for the impact of its three rate rises last year to transmit through the economy.He said another rate rise next month would be a big blow to Victoria's economy. "We are in the midst of a drought, we have had bushfires which are impacting on business quite significantly. While those influences will pass, rate rises would come at an unwelcome time for many Victorian businesses."Harvey Norman chairman Gerry Harvey told The Age another rate rise would not make that much difference to his business, but he conceded it could affect certain sectors of the economy, and leave mortgage holders vulnerable."There are segments of the economy that another rate rise could send broke," he said. "That's what happens when you have 15 years of growth and no recession. People just gear up and gear up."Mr Harvey said that although lower petrol prices in theory should increase spending, consumers were scared to spend more because of the prospect of further rate rises, and that meant business had remained steady. "The thing that's occupying people's minds is the anticipation of another rate rise," he said. "That has a greater effect on spending than the actual rate rise itself."Deutsche Bank chief economist Tony Meer is tipping the underlying inflation rate will reach 0.7 per cent in the quarter (lower than last quarter), giving an annual rate of 3.1 per cent, "consistent with what the Reserve Bank is expecting".He said the Reserve Bank would take signs of moderating inflation, and the fact that its three rate rises had hurt the housing market, "and that will be enough evidence for it to sit on the sidelines"."I might be wrong, the Reserve Bank may tighten on February 7, but it would not be because of some magical line in the sand on the CPI," he said. "If you keep tightening before inflation has turned, you will ... have to have aggressive rate cuts. That's not the policy the Reserve Bank follows."National Australia Bank chief economist Alan Oster agreed. He also forecasts an underlying rate of 3.1 per cent, and expects the Reserve Bank to stay on hold. But he said if core inflation hit 0.8 per cent in the quarter (3.2 per cent annual rate), that would be high enough to trigger another rise. "If they are going to go, they are going to go in February," he said. "I actually think they shouldn't go, because I think inflation is going to moderate further."
© 2007 The Age