Bloomberg News

Australia TD 12-Month Inflation Gauge Slows as Food Costs Drop

November 01, 2011

Oct. 31 (Bloomberg) -- Australia’s annual inflation rate slowed in October for a third straight month on declining costs for fruit and vegetables, rent and furniture, a private report showed.

Consumer prices rose 2.6 percent this month from a year earlier, compared with a 2.8 percent annual gain in September, according to an index compiled by TD Securities Inc. and the Melbourne Institute released in Sydney today. The central bank aims to keep annual inflation in a 2 percent to 3 percent range on average. Prices increased 0.1 percent in October from a month earlier after a 0.1 percent advance in September.

Reserve Bank of Australia Governor Glenn Stevens will weigh reducing the benchmark interest rate tomorrow for the first time since April 2009 as policy makers balance weaker global growth and domestic inflation against a mining-investment boom. Fifteen of 26 economists surveyed by Bloomberg News predict Stevens will lower borrowing costs by a quarter percentage point to 4.5 percent after consumer-price growth slowed last quarter.

“We expect another detailed discussion about inflation at tomorrow’s RBA board meeting, comparing near-term inflation outcomes with the outlook for 2012,” Annette Beacher, head of Asia-Pacific research at TD Securities in Singapore, said in a statement. “Only three months ago the RBA Board considered further policy tightening after a strong inflation print, and tomorrow the board may discuss returning monetary policy to a more neutral stance after a soft inflation print.”

Fruit Prices

Today’s report showed fruit and vegetable prices declined by 4.8 percent in October and rents fell 1.1 percent, while fuel prices advanced 0.9 percent. Costs also gained for new dwelling purchases by owner-occupiers as well as for holiday travel and accommodation, it showed.

Stevens hasn’t moved the nation’s key rate since he last raised it in November last year to 4.75 percent, the highest level in the developed world. Policy makers said this month that they have scope to reduce borrowing costs if needed.

Australia’s economy is being driven by a resource bonanza as China and India, two countries that account for more than a third of the world’s population, increase demand for minerals and energy.

Australia’s business investment jumped 14 percent in the third quarter, led by liquefied natural gas projects in mining states Western Australia and Queensland, a Deloitte Access Economics report showed today.

Resource Investment

Projects valued at A$406.8 billion ($435 billion) were committed or in progress as of Sept. 30, up A$49.8 billion from the previous three months, the Canberra-based research company said in a report today.

“We expect the private capital expenditure survey to confirm that a massive investment wave is supporting activity, which in turn will be boosting exports for decades to come,” Beacher said in the statement. “We believe on balance the prudent path is to leave the cash rate at 4.75 percent for now.”

The Melbourne Institute is a research unit of Melbourne University, and TD Securities is a division of Toronto-Dominion Bank, Canada’s second-largest lender. The monthly inflation index measures the prices of more than 1,000 goods and services.

--Editors: Garfield Reynolds, Brendan Murray

To contact the reporter on this story: Michael Heath in Sydney at mheath1@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at orsphang@bloomberg.net


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