A leading private sector inflation report shows a surprisingly sharp rise in consumer prices last month.
The TD Securities – Melbourne Institute Monthly Inflation Gauge rose by 0.7 per cent in December, after minimal increases of 0.2 and 0.1 per cent in the previous two months.
In the year to December, consumer prices were up 2.7 per cent, or 2.9 per cent on the Reserve Bank’s preferred trimmed mean measure of the gauge which excludes the most volatile price moves.
Both those readings are well in the upper half of the RBA’s 2-3 per cent target range for inflation.
However, TD Securities head of Asia-Pacific research Annette Beacher says the high December reading needs to be viewed with caution, as the month traditionally has high price rises.
She says a large jump in tobacco prices has also contributed to the increase.
“The Labor Government did put in place a change in the timing of excise tax increases on tobacco and so, instead of the usual third quarter, this has popped up in the fourth quarter,” Ms Beacher observed.
“So that’s why we’re treating this number with a little bit of caution – some of it being seasonal and some of it being this one-off excise tax.”
Higher fruit, vegetable, petrol and holiday accommodation costs were the other culprits for the inflation increase in December.
Annette Beacher predicts official figures, to be released on Wednesday, will show annual inflation in the middle of the Reserve Bank’s 2-3 per cent target range.
She says, if that is the case, the RBA is likely to leave interest rates unchanged.
“I suspect they’ll be looking elsewhere for direction on monetary policy, such as house prices, retail sales or maybe what’s going on in the US,” Ms Beacher added.
On average, analysts expect the Bureau of Statistics figures will show inflation rose by around 0.5 per cent in the December quarter.