Inflation threat continues

Inflation continued to grow at a worryingly rapid pace in August despite international credit wobbles, according to the TD Securities-Melbourne Institute Monthly Inflation Gauge released today.

According to the gauge, inflation rose 0.5% in August, a big increase that follows a 0.6% rise in July.

This leaves inflation for the year to August at 2.9%, right at the top of the Reserve Bank of Australia’s target band of 2% to 3%.

However, the trimmed mean inflation gauge, a statistical measure of underlying inflation closer to that used by the RBA, has increased 3.1%, a breach of the RBA’s target policy that could make it more likely we will see a further rate rise before the end of 2007.

The ongoing strength of the Australian economy is also reflected in a range of other economic figures released today:

• Job ads increased by 0.1% in August from already high levels, according to the ANZ Job Ads series.
• Company profits increased 1.4% in the June quarter, while inventories lifted by 0.4% and wages a very strong 2.2%, all pointing to strong economic conditions.
• The Australian Industry Group-PricewaterhouseCoopers Australian Performance of Manufacturing Index fell five points from recent high levels, but even so indicated that the manufacturing sector has maintained its 15^th consecutive month of growth.

Mike Preston