Australian inflation gauge stays low in Jan: TDMI

[SYDNEY] A private gauge of Australian inflation held at a two-and-a-half year low in January as plummeting petrol prices offset rising import costs and a seasonal jump in health charges, pointing to scope for a cut in interest rates.

The TD Securities-Melbourne Institute's monthly measure of consumer prices edged up 0.1 per cent in January from December when it had been unchanged.

The annual pace stayed at 1.5 per cent, matching the lowest reading since July 2012, and below the Reserve Bank of Australia's (RBA) target band of 2 to 3 per cent.

The central bank holds its first policy meeting of the year on Tuesday and markets are betting heavily that the cash rate will be cut from 2.5 per cent, where it has been for 18 months.

Interbank futures imply a 60 per cent probability of a move to 2.25 per cent having rallied sharply in the last couple of weeks as central banks around the globe eased policy to combat disinflation and weak demand.

TD's head of Asia-Pacific research, Annette Beacher, doubted the RBA would want to be so hasty. "We do not expect such a drastic shift in the RBA Board's well-worn and transparent process, instead we favour an unchanged cash rate and a shift to an explicit easing bias to offer support to demand should that prove to be necessary," said Beacher.

Monday's data did suggest underlying price pressures in Australia were not quite as benign as implied by the headline consumer price reading.

The trimmed mean measure of inflation rose 0.3 per cent in January taking the annual pace up to 2.3 per cent, from just 1.7 per cent in December.

Inflation excluding the volatile items of petrol, fruit and vegetables, jumped 0.7 per cent in the month while the annual pace accelerated to 2.4 per cent.

Then again, January is typically a strong month as many prices, from drugs to transport fares to school fees, are adjusted higher for the start of the new year.

One example was prices for medical products, appliances and equipment which climbed 8.9 per cent in the month.

More unusual was an 8.7 per cent rise in prices for audio, visual and computing equipment, which could reflect retailers passing on higher import costs from a falling Australian dollar.

Petrol moved the other way, falling a steep 13.4 per cent, while fruit and vegetables and furniture also declined.

Prices for tradable items rose just 0.2 per cent in the year to January, while non-tradable inflation stayed at 2.5 per cent.

REUTERS