Finance Finance News Inflation beginning to slow, cash rate likely to remain unchanged

Inflation beginning to slow, cash rate likely to remain unchanged

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Prices of goods and services were fairly flat in August, making the chance of an interest rate hike less likely.

The flat result for the latest TD Securities/Melbourne Institute monthly inflation gauge followed a 0.2 per cent rise in July.

Price rises for fruit and vegetables, furniture and the newspaper, books and stationary category were offset by falls in health costs, petrol and holiday accommodation.

The gauge was up by 2.5 per cent for the 12 months to August, which is much lower than the official inflation rate of three per cent in the year to June, right at the top of the Reserve Bank’s target band.

It is becoming clearer that the surprise spike in inflation in the June quarter won’t make an interest rate hike more likely.

Price rises in the past two months have been subdued or non-existent, which should allow the Reserve Bank to stick to its policy of keeping the cash rate stable for the foreseeable future.

TD Securities head of Asia-Pacific research Annette Beacher is not expecting any surprises from the RBA board meeting about interest rates on Tuesday.

“The RBA continues to express uncertainty about Australia’s economic health once the mining boom ends, hence for tomorrow’s board meeting we expect more of the same stability in interest rates,” she said.

All 15 economists surveyed by AAP are forecasting the cash rate to remain at 2.5 per cent in September and only four predict a hike before June 2015.

Ms Beacher said the repeal of the carbon tax is yet to have a noticeable impact on utility prices but should be more evident in the coming months.

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