Finance Finance News Cost of living on the rise

Cost of living on the rise

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An economist says rising inflation should force the Reserve Bank to raise interest rates within the next year.

The TD Securities – Melbourne Institute Inflation Gauge rose by 0.3 per cent in May, after increasing 0.4 per cent in April.

That lifts the annual inflation rate to 2.9 per cent, which is its highest level since August 2011 and near the top of the Reserve Bank’s comfort zone.

The reading also means that TD’s private measure now matches the Bureau of Statistics official inflation reading for the March quarter.

TD’s index shows prices rose for fruit and vegetables (up 6.1 per cent), as well as furniture (up 4 per cent) and tobacco (up 2.3 per cent).

Offsetting part of these increases, the cost of holiday travel (down 3.7 per cent), health (down 0.8 per cent), petrol (down 1.1 per cent) and footwear (down 0.9 per cent) all eased.

TD Securities economist Annette Beacher says the figures suggest the weak growth in consumer prices over the first three months of the year could be a one-off, and inflation remains “sticky” close to the top of the Reserve Bank’s 2-3 per cent target range.

“The RBA has expressed some doubt about the reliability of the capital expenditure survey, however, we believe the recent substantial upgrade to 2014-15 services investment plans should be well received and, combined with the leap in residential construction in the early months of 2014, proves that non-mining activity can offset the decline in mining investment,” she noted in the report.

“While we may have pushed out the beginning of our expected tightening cycle from November to March 2015, upside to price and activity data speaks to us that the market remains too complacent by not pricing any rate rises over the next twelve months.”