Australian consumer inflation healthy in Q2

Australia’s central bank said growth probably slowed last quarter and the currency is offering less assistance than would be expected given weaker commodity prices.

“The question of whether they might be reduced further remains, as I have said before, on the table”, Stevens said in a speech in Sydney.

“Members noted that the exchange rate had thus far offered less assistance than would normally be expected in achieving balanced growth in the economy and that further depreciation seemed both likely and necessary”.

It took the annual headline rate of inflation to 1.5 percent.

In a sign that the falling Australian dollar is starting to put upward pressure on the price of imports, the price of “tradables” rose 1.2 per cent in the June quarter, as compared to a modest 0.5 per cent rise in the cost of goods and services not exposed to global competition.

The Department of Employment’s latest vacancy report showed job advertisements on the internet declined 0.1 per cent in June to be 1.7 per cent lower over the year.

Mr Stevens believes there should be a discussion over whether the 3.0 to 3.25 per cent growth rate average that has been assumed for many years is now lower and that in fact the economy is actually travelling closer to trend. Crucially, the annual pace of core inflation at around 2.3 percent stayed comfortably in the lower half of the RBA’s target band of 2 to 3 percent.

“In terms of what the RBA would do, this is middle-of-the-road; it doesn’t change their assessment either way”, JP Morgan’s chief economist for Australia Stephen Walters told AFP.

Some important economic data out of Australia this week may help to clear the outlook for interest rates.

A 12 per cent jump in petrol prices was largely to blame for the increase in the quarter.

“The rate of unemployment is unchanged from a year ago, whereas we had been thinking it might be a little higher than this by now since growth in real GDP has been, according to the available statistics, below trend”.

“Employment growth has picked up noticeably, and hours worked have also increased”, he said. Minutes of its July policy meeting released this week showed the Board was confident there was enough spare capacity in the labour market to keep wages, and thus inflation, in check.