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BENIGN inflation will likely see the central bank keep interest rates on hold next week, keeping home lending rates steady, economists said today. Consumer prices rose by 0.7 per cent in March, giving Australia an annual inflation rate of 2.4 per cent, the Australian Bureau of Statistics said today. This compares to the December quarter's 0.8 per cent increase for an annual rate of 2.6 per cent. The Reserve Bank of Australia raises interest rates only if it fears inflation will rise over 3 per cent. TD Securities chief economist Stephen Koukoulas said the number confirms that inflation had remained steady within a tight range. "The number probably just eases the pressure at the margin for the RBA not to raise interest rates ... My hunch is that they don't go, they leave them steady next week," he said. The RBA kept official interest rates on hold at 5.50 per cent after its April monthly meeting last week, despite strong expectations that the bank would raise rates. It meets next Tuesday for its May board meeting. The RBA raised rates in early March to 5.50 per cent, which took official rates to their highest level in four years. RBC Capital Markets senior economist Michael Every said that, coupled with yesterday's benign producer price index (PPI) data, today's CPI indicated the RBA would probably keep interest rates on hold for now. "After the benign first quarter PPI print yesterday this release suggests that although the labour market will likely keep the RBA on a tightening bias for some time, it looks as if there will be no further need for tightening provided the economy slows ahead as we expect," he said. The quarterly consumer price index showed increases in the price of medicines (up 16.8 per cent), houses (1.4 per cent), domestic holiday travel and accommodation (4.2 per cent) and secondary school education (7.0 per cent). But it was kept in check by a 2.7 per cent fall in the price of petrol, a 1.4 per cent drop in motor vehicles, 2.5 per cent fall in furniture and a 6.4 per cent drop in audio, visual and computing equipment. Rise not ruled out HSBC chief economist John Edwards said the central bank was unlikely to tighten rates before the May 10 budget, but could raise rates as inflation rose later in the year. "We think another tightening highly likely, perhaps as early as July." "This quarter's CPI increase does not reflect either the strength of the Australian economy, or the underlying price pressures," Dr Edwards said. "It is highly likely that the consumer price index will be increasing more swiftly this quarter and next than it did for the same quarters last year, which means the annual rate will move up," he said. |
