Melbourne Institute Consumer Inflation Posts 0.4% Increase

The TD Securities-Melbourne Institute consumer inflation, a private measure of Australian inflation has posted growth for the second consecutive month in September, the growth signifies that the expansionary monetary policy might be causing prices to rise. The measure of inflation grew by 0.4% in September and was 1.3% higher than it was 1 year ago. Consumer inflation grew by 0.2% in the month of August. On a month-on-month basis, this is the highest reading since the month of July when inflation posted a 0.6% rise.

The Melbourne Institute’s monthly inflation index is the most accurate tool that can be used to gauge national Core Price Inflation trends in the Australian economy. The Australian government releases its official inflation report every quarter.

“Manufacturing conditions improved in September, but remained in contraction for a second consecutive month. The AiG performance of manufacturing index (PMI) rose 2.9 points to 49.8 on a scale where 50 separates expansion from contraction”, the Australian Industry Group (AiG) stated earlier on Monday.

The Reserve Bank of Australia is however scheduled to hold its monetary policy meeting next week on the 4^th of October, and it will announce its decision later that day at 03:30 GMT. Analysts predict that the central bank will be mostly worried about the current weakness in inflation and the strengthening AUD, but the chances of a policy change will be subdued by the strong housing market. Some economists have warned that the Australian dollar is well above the RBA’s estimate of fair value, and it could form part of a case to lower rates further.

Paul Brennan, chief economist at Citigroup, Australia, says the currency is under scrutiny, but so far it hasn’t reached levels that will trigger a cut by the RBA. “The Australian dollar remains a complicating factor for the rebalancing of the economy that the RBA is trying to engineer, although on our estimates the overvaluation of the currency to fair value is relatively small,” he said.

Additionally, economic growth has held up well, commodity prices have risen, and the drag from the mining investment decline is set to fade may also pause the RBA for further monetary easing. We anticipate that the debt market will remain volatile ahead of the Reserve Bank of Australia (RBA) monetary policy meeting. A survey of 10 economists by The Wall Street Journal showed all are expecting no change in rates this week.

"We continue to expect the RBA to keep the cash rate on hold at the record low of 1.5 percent.  The trajectory of the AUD also remains important to the RBA’s deliberations, as well as labour and housing market data," said ANZ in a report to clients.