INFLATION WITHIN RBA TARGET

 INFLATION remains within the RBA’s target band, giving the Housing Industry Association (HIA) to predict interest rates will stay at historic lows.

Consumer Price Index (CPI) figures for the December quarter released by Australian Bureau of Statistics this morning showed the price level rose by 0.8 per cent and underlying inflation by 0.9 per cent.

CPI rose 2.7 per cent in the year to December, putting it well within the Reserve Bank’s target rate of 2-3 per cent.

HIA senior economist Shane Garrett says the figures add fuel to the notion interest rates will remain at all-time lows for a considerable amount of time to come.

“There is no justification to depart from current settings while inflation is under control and while economic growth continues to be below trend,” says Garrett.

“Domestic manufacturers will be encouraged to see that import prices are coming under pressure. After several difficult years, Australian manufacturers are finally starting to see their price competitiveness receive a boost.

“It is encouraging to see the rate of housing cost a little below its medium term trend rate, however, at 4.3 per cent, day-to-day housing costs are growing much faster than the general price level. This shows that more needs to be done by policymakers in making housing more affordable.”

The most significant price rises this quarter were for domestic holiday travel and accommodation (+6.9%), fruit (+8.1%), vegetables (+7.1%), new dwelling purchase by owner-occupiers (+1.0%), international holiday travel and accommodation (+2.6%) and tobacco (+2.2%).

The ABS says holiday expenses rose due to peak season fares in travel and accommodation, while fruit and vegetable prices rose mainly due to adverse weather.

Prices for new dwelling purchase by owner–occupiers rose mainly due to rising building materials and labour costs.

The CPI rose 2.7% through the year to the December quarter 2013, following a rise of 2.2% through the year to the September quarter 2013.