By Malcolm Maiden
The June quarter consumer prices inflation figures have failed to banish the 'I' word. Headline consumer price inflation is right on expectations and within the Reserves Bank's zone of comfort, rising by 0.5 per cent compared with the March quarter, and by 1.5 per cent in the year to June.
Underlying measures that eliminate short-term price swings and give a better guide to where prices are going do not fit so neatly into the Reserve's target for inflation of between 2 per cent and 3 per cent a year, however. Core inflation was 0.8 per cent quarter-on-quarter, below a 1.1 per cent increase in the March quarter, but still up 3.9 per cent in the year.
It was only yesterday that the Reserve reaffirmed a ''steady as you go'' position on interest rates. The minutes of its July 7 meeting that left the cash rate unchanged at 3 per cent reconfirmed that the central bank was comfortable with the cash rate where it was after pulling it down from 7.25 per cent since September last year, but also believed that the inflation outlook was sufficiently docile to allow another cash rate cut if becomes necessary.
That remains the Reserve's position until the Bank says it is not. But the persistently high core inflation numbers are coming as this economy shows signs of reviving after displaying what the Reserve Bank yesterday called surprising resilience in the global downturn: if the recovery continues, price pressures can only ratchet up.
The odds on a rate cut are lengthening.