Inflation up 0.5% in June quarter, slightly below expectations, leaving room for future rate cuts

The Consumer Price Index (CPI) rose 0.5% in the June quarter 2012, compared with a rise of 0.1% in the March quarter 2012.

This reading was just below forecasts of a 0.6% quarterly rise, according to a poll of 24 economists by Bloomberg last week.

The CPI rose 1.2% through the year to the June quarter 2012, compared with a rise of 1.6% through the year to the March quarter 2012, well within the RBA's target 2% to 3% per annum inflation band, leaving room for the RBA to cut rates later in the year, should it need to.

Annualised CPI is now at its lowest rate in 13 years, CommSec points out.

The most significant price rises in the June quarter 2012 were for medical and hospital services (+2.8%), rents (+1.1%), vegetables (+5.2%) and furniture (+4.5%).

The most significant offsetting price falls were for domestic holiday travel and accommodation (–4.0%), audio, visual and computing equipment (–3.8%) and cakes and biscuits (–2.8%).

CommSec expected underlying inflation to come in at 0.6% for the June quarter and 1.9% for the year and said this should “make the Reserve Bank even more comfortable that over the mid-term inflation remains well contained” providing scope for a rate cut over the next couple of months.

JP Morgan economist Ben Jarman says today's CPI figures won't surprise the RBA "in any meaningful way".

The Commonwealth Bank is now forecasting the next rate cut in November, having previously forecast one on August 7.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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