Business

Saturday July 21, 2012

Australia import prices rise, inflation still subdued


SYDNEY: Australia’s import prices rose by more than expected last quarter as a lower dollar added to rising costs for fuel and drugs, underlining how important a strong currency has been in restraining inflation in the country.

Data from the government showed import prices rose 2.4% in the second quarter from the first quarter, when they fell 1.2%.

The increase outstripped forecasts of a 1.5% rise, led by costlier petrol and pharmaceuticals.

More encouragingly, prices for Australia’s exports firmed 1% to partly recoup some of the first quarter’s 7% drop, with metal ores and gas leading the gains.

The recent rapid ascent of the Australian dollar, which hit record highs on the euro this week, could also help nudge down import prices in the current quarter, keeping inflation on an even keel and allowing further rate cuts if necessary.

Key figures on consumer prices for the second quarter are due next week and there are expectations underlying inflation will be at the very bottom of the Reserve Bank of Australia’s long-term target band of 2% to 3%.

Indeed, if forecasters are right, annual underlying inflation will be the lowest since 1999, one reason financial markets are still pricing in at least 50 basis points of further cuts in the central bank’s 3.5% cash rate.

After easing in both May and June, the central bank held steady this month to assess the impact of the moves and the outlook for global growth. — Reuters

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