TD Securities - Melbourne Institute Monthly Inflation Gauge

Monday 1st August 2011

The TD Securities - Melbourne Institute Monthly Inflation Gauge rose 0.3 per cent in July, following no change in June and a 0.2 per cent rise in May.
• The index number is 129.65.
• In the twelve months to July the Inflation Gauge rose by 3.2 per cent, back above the RBA's two to three percent target band.
• The trimmed mean of the Inflation Gauge rose by 0.2 per cent in July, to be 2.1 per cent higher than a year earlier, and appeared to only briefly dip below the two to three per cent target band.

According to Annette Beacher, Head of Asia-Pacific Research at TD Securities, "The quarterly average of our Inflation Gauge foreshadowed the solid 0.9 per cent lift in the June quarter CPI. For months now our Gauge predicted that annual CPI growth would exceed 3 per cent and this report hints at similar upside pressure for the September quarter CPI report, with the monthly growth rate the highest in three months and the annual rate printing at 3.2 per cent in the year to July."

"When assessing the stance of monetary policy, however, many more variables than just inflation need to be considered. There are considerable offshore headwinds associated with the United States and European sovereign debt issues, threatening the global economic recovery. Closer to home, declining credit growth and the cautious consumer confirm that the economy is truly two-speed, overshadowing the ongoing good news of the private sector investment boom.

"We believe the RBA tomorrow can leave the cash rate unchanged at 4.75 per cent whilst discussing these conflicting pressures, leaving the stance of monetary policy as "mildly restrictive" for longer. However, as we are of the view that offshore headwinds will abate, we forecast one more rate rise this year to 5 per cent, and we continue to pencil in November as the most appropriate month." added Beacher.

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