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Inflation running at record pace -

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Inflation running at record pace

The World Today - Monday, 5 May , 2008 12:22:00

Reporter: Peter Ryan

ELEANOR HALL: As the Reserve Bank prepares for its monthly meeting on interest rates tomorrow,
there's some new disturbing data on inflation.

A private gauge shows that inflation running at its fastest pace in five years, driven by higher
rents and spiralling fuel prices.

With the details, we're joined in The World Today studio by business editor Peter Ryan.

So Peter, tell us more about this latest inflation reading?

PETER RYAN: Eleanor, this is private data which the Reserve Bank generally regards as monthly, and
at times, volatile. But the gauge from TD Securities and the Melbourne Institute has shown the
steady trend borne out in the official figures from the ABS.

So the latest reading shows inflation rose half a per cent in April, after a slightly smaller rise
in March, but that's all part of the steady upwards movement. And it put the annual pace of
inflation at 4.34 per cent.

ELEANOR HALL: Way above the range isn't it?

PETER RYAN: Yeah, and it's just above the last official reading in the March quarter CPI of 4.2 per
cent, and as you say, it's way beyond the comfort zone of two to three per cent. The gauge is
showing big rises in health services, rental accommodation, financial services and fuel, which rose
12.6 per cent in the year to April.

And Josh Williamson a senior strategist at TD Securities, says the latest data could make
interesting or disturbing reading for the Reserve Bank when it sits down to discuss interest rates

JOSH WILLIAMSON: I think the Reserve Bank would be very worried about this data and the fact that
inflation continues to accelerate at a time when the economy is actually slowing. Now, some of that
is due to global factors like globally high food and petrol prices, and there's not a lot the
Reserve can do about that.

But what they can do is try to actually dampen inflation pressures that are being generated within
Australia. But I think they will be concerned though, that the fact that the economy is slowing
should start to impact inflation soon. But for the time being, it could be a close call on rates.

ELEANOR HALL: That's Josh Williamson of TD Securities.

Now Peter, he's talking about a close call, the Reserve Bank has already inflicted a lot of pain
this year in its battle with inflation. Do you think he's right? Is the Reserve Bank going to be
considering another increase tomorrow?

PETER RYAN: Well not necessarily tomorrow. No one is expecting any action, despite this new data,
but there will some understandable size of relief from right across Australia with rates remaining
where they are. And that of course is despite the most recent inflation reading of 4.2 per cent and
the TD reading.

Now, the board has sent signs though that it might set on the sidelines for an extended period,
perhaps a year, given that rates have already been increased significantly this year with
back-to-back hikes in February and March causing a lot of pain, and of course the banks have acted
independently throughout the year with 25 basis points here, 10 there, because of the credit

But there'll be more than the usual scrutiny directed at the RBA's comments that come with the
rates decision, and then Friday's quarterly statement on monetary policy for any hints on the depth
of the economic slowing or perhaps the rising threat of inflation.

ELEANOR HALL: There's been a lot of talk about the economy slowing, but apparently not on the jobs
front with some new data out today?

PETER RYAN: Yes, there are signs of a two-speed economy with different types of data, and what
we've seen this morning is from the closely watched ANZ job advertisement series. It's shown a
surprising rebound in hiring intentions, meaning to slow down might now be as pronounced as first

Job ads in newspapers on the internet rebounded in April, and that points to a continuing
resilience in hiring, even though we've seen consumer demand cool. So, the total number of jobs
climbed 3.1 per cent in April, and that easily recoups a major fall in March when the job ads index
fell by 0.7 of one per cent.

So this sees concerns that employment might be the next area of the economy to come under pressure
because of higher interest rates of rising living costs. Importantly though, skilled labour remains
tight, but so far no sign of wage inflation.

ELEANOR HALL: Business editor Peter Ryan, thank you.