Australian inflation eases, spurs rate cut talk

SYDNEY (AFP) – Australian inflation came in lower than expected Wednesday, climbing a seasonally-adjusted 0.5 per cent in the December quarter and raising speculation about an interest rate cut.

The Australian Bureau of Statistics said the consumer price index increased 0.5 per cent after seasonal adjustments in the three months to December 31 and was 2.2 per cent higher on-year.

Underlying inflation, a measure which strips out volatile items and is used by the Reserve Bank of Australia (RBA) in determining monetary policy, was 0.5 per cent in the December quarter, down from 0.7 per cent in the previous quarter.

Treasurer Wayne Swan said the data showed price pressures were contained, with underlying inflation moderating to 2.3 per cent through the year to December, down from 2.4 per cent through the year to September.

“Contained inflation is certainly a healthy sign and it’s a reminder of Australia’s strong economic fundamentals, along with solid growth, low unemployment and strong public finances,” he told reporters.

The figures are softer than expected with the RBA forecasting in November that underlying inflation would be 2.5 per cent at the end of 2012.

The most significant rises for the quarter were in domestic holiday travel, fuel and rents, while a fall in the price of vegetables, computer and electrical equipment and pharmaceuticals offset these.

The data places inflation inside the Reserve Bank of Australia’s two-three per cent target range, meaning it has room to cut interest rates in coming months, analysts said. The central bank cut the official interest rate by 25 basis points to three per cent in December, a level not seen since the financial crisis, in a bid to bolster the economy.

Analysts said the figures did not change market expectations for a further rate cut in the near-term, possibly when the RBA board next meets on monetary policy on February 5.