Anyloan Australia News
Inflation fall strengthens case for rate cuts
Source: ABC News: 06 Dec 2011
A leading unofficial measure of inflation eased last month due to falling food and fuel prices, strengthening the case for interest rate cuts next year.
The TD Securities-Melbourne Institute Inflation Gauge fell 0.1 per cent in November to an annual rate of 2.1 per cent.
The trimmed mean - the Reserve Bank's preferred measure of inflation - was at 2.2 per cent for the year.
The result marks a two-year low, and falls at the lower end of the Reserve Bank's target range of 2 to 3 per cent.
A 2.1 per cent fall in the cost of fruit and vegetables eased price pressures, while fuel costs fell 3.5 per cent in the month and prices for travel and accommodation also eased.
But increased prices for household appliances, tools, furniture and new homes offset those falls.
TD Securities head of Asia-Pacific research Annette Beacher says petrol prices could begin to rise in the coming months.
"I think as we start to see a little bit more unrest in the Middle East and we are starting to see oil back over the $100-a-barrel mark we think that's the last of the sharp falls in fuel," Ms Beacher said.
Ms Beacher says the result strengthens the case for a cut in the official cash rate next year, but suggests it may be too soon for the central bank to act this month.
"We could be talking a year or two down the track before we start talking about higher interest rates," she said.
"The European crisis at the moment is in a holding pattern, so I think the RBA is best to sit tight and wait for this crisis to unfold next year and certainly be in a position to cut by 50 or 100 [basis] points should we find ourselves in a 2008 liquidity situation."
The monthly TD Securities-Melbourne Institute inflation measure is based on the methodology used by the Australian Bureau of Statistics to calculate its official quarterly inflation figures.
ABC News
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