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Inflation figures support rate rise

28 January 2010 Reporter

The latest inflation figures have increased the possibility of a fourth consecutive interest rate rise.

While headline inflation slowed last quarter to just 0.5 per cent, the Reserve Bank of Australia’s preferred measure of underlying inflation hit almost 0.7 per cent to reach an annual rate of 3.4 per cent – well above the central bank’s target band of 2 to 3 per cent.

This jump in inflation has intensified speculation of a further rate rise when the Reserve Bank meets on Tuesday.

But the Real estate Institute of Australia (REIA) president David Airey said the Reserve Bank needs to exercise caution in its decision on official interest rates.

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According to Mr Airey, the increase in inflation should not be interpreted as rampant demand in the housing sector.

“Whilst the index for house purchase increased 1.0 per cent for the quarter and 2.4 per cent for the year, the December figure reflects three consecutive interest rate rises over the December quarter”, Mr Airey said.

“When you examine the details, you could not conclude that further interest rates rises are required next week to suppress excessive demand in the housing sector. Indeed, you could draw a contrary conclusion.”

Inflation figures support rate rise
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