Inflation rise unlikely to shift rates

by Julia Corderoy24 Jul 2014
The annual rate of inflation increased slightly during the June 2014 quarter, but interest rates are set to remain unchanged at record lows for some time to come.

The headline rate of annual inflation increased to 3% in the June 2014 quarter, rising slightly from the March quarter which saw the rate of inflation at 2.9%.

The key measures of underlying inflation stood at 2.9% and 2.7%respectively during the quarter. Both measures are still within the RBA’s inflation target range, although the trimmed mean measure has risen since the previous quarter.

“Today’s data do show that inflationary pressures in the economy are increasing slowly. However, this is in line with expectations and the RBA will not be diverted from its low interest rate strategy on this basis,” HIA senioreconomist Shane Garrett said.

“The Australian dollar’s renewed strength is hampering growth in the economy’s traded sectors, and interest rates need to stay low to keep the dollar in check. Low interest rates are also helping to stimulate demand in several important sectors of the domestic economy, including residential construction,” Garrett said.

Garrett said these factors mean the RBA will be reluctant to increase the interest rate for some time.