Inflation increase gives weight to Feb rate hike

Inflation has risen for the second consecutive month, adding to concern that more interest rate hikes are on the way.

According to the TD Securities – Melbourne Institute Inflation Gauge, consumer prices rose 0.3 per cent in December last year to 2.6 per cent – the highest level in nine months, but still within the Reserve Bank’s 2 to 3 per cent target band.

Core inflation was also within the Reserve Bank’s target range, coming in at 2.4 per cent for the year.

TD Securities senior strategist, Annette Beacher, told ABC News that interest rates were still low considering Australia’s seemingly rapid economic recovery.

“After a period of clear disinflation over the year from mid-2008, inflation has now not only bottomed out, but early signals suggest some emerging upside pressure. This shift justifies the recent rapid-fire adjustment to the cash rate the RBA from 3 per cent to 3.75 per cent,” Ms Beacher said.

“We expect an additional 25 basis point increase in the cash rate to 4 per cent at the 2 February Reserve Bank board meeting, and a pause in March, scaling back the pace of the Reserve Bank returning the cash rate to more neutral levels.”

The Adviser

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