Finance Finance News Inflation expected to rise past 3%

Inflation expected to rise past 3%

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Inflation is expected have risen above the Reserve Bank of Australia’s target range in the first months of 2014 but that alone won’t spark an interest rate rise.

The consumer price index (CPI), the key measure of inflation, is forecast to have risen by 0.8 per cent in the March quarter, for an annual rate of 3.2 per cent, an AAP survey of 12 economists shows.

That is above the RBA’s two to three per cent target range.

The Australian Bureau of Statistics will release the inflation figures on Wednesday.

The high headline inflation figure is unlikely to concern the Reserve Bank because it’s likely to be a one-off, National Australia Bank senior economist Spiros Papadopoulos said.

“For a central bank that has historically been quite hawkish and consistently talked up the inflation risks to the economy, the RBA’s forecasts suggest few inflation fears,” he said.

“Recent RBA board meeting statements have reaffirmed that inflation is expected to be consistent with the two to three per cent target over the next two years.

“With activity running below trend and unemployment still rising and wages subdued, the RBA will continue to expect softer inflation in the second half of 2014, which will ensure the cash rate remains unchanged for a lengthy period.”

Commonwealth Bank chief economist Michael Blythe said inflation will be boosted by rises in the price of fruit and vegetables and petrol.

“These two volatile items account for the gap between underlying and headline inflation forecasts,” he said.

“Beyond the volatiles, some food prices may be affected by the drought conditions emerging in some key agricultural areas.

“The strength of the housing market will keep some pressure on housing-related CPI items.”

The median forecast for underlying inflation, which excludes volatile price movements, is 0.65 per cent in the March quarter and 2.85 per cent over the 12 months to March.

Mr Blythe said the first quarter inflation figures will, as usual, be affected by increases in utility charges such as electricity, public transport price rises and increased education costs.

Outside the volatile and seasonal price rises, there isn’t much to significantly drive up inflation, he said.

“A top-down modelling approach shows a rising contribution from import prices courtesy of the lower Aussie dollar,” Mr Blythe said.

“The contribution from unit labour costs is quite restrained, consistent with the slowdown in wages growth over the past year.”