Inflation data

01/11/2012

Quarterly inflation data was released this week which showed an unexpectedly large increase in the Consumer Price Index (CPI) for September.

Headline inflation was up 1.4% over the quarter and 2.0% over the year while the Reserve Bank’s preferred measure, the average of the trimmed mean and weighted median, rose 0.7% over the quarter and 2.5% over the year.

Despite the half a percent rise in core inflation between June and September 2012, core inflation remains right in the middle of the RBA’s target range for inflation which is between 2% to 3%.

The higher than expected inflation reading has lowered expectations of a Melbourne Cup day rate cut from about an 85% chance down to a 60% chance, based on the ASX 30 Day Interbank Cash Rate Target.

Other big news of course was the release of the Federal Government’s Mid Year Economic and Fiscal Outlook.

The Government is still aiming for a surplus in 2012/13, however the forecast surplus has slimmed to just $1.1 billion.

The Government has shaved a quarter of a percent from their economic growth forecasts, with an expectation of 3.0% GDP growth this year, revised down from 3.25% in the May 2012 Budget.

The bottom line is that interest rates will have to stay low and potentially fall further for the Federal Government to achieve their surplus objective.

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