Consumer price pressures remain weak

6 Aug 2012, 3:11 pm   -   Source: AAP

Consumer prices in July are at their lowest annual rate in nearly three years despite the imposition of the carbon tax.

Consumer prices rose only slightly in July, despite the start of the carbon tax at the beginning of the month.

The TD Securities-Melbourne Institute inflation gauge rose 0.2 per cent in July, after a 0.2 per cent fall in June and a flat result in May, the survey published on Monday showed.

In the year to July, the inflation gauge was 1.5 per cent, the lowest annual rate in nearly three years and well below the Reserve Bank of Australia's (RBA) two to three per cent inflation target band.

TD Securities head of Asia-Pacific Research Annette Beacher said the start of the carbon tax on July 1 came at a time when most price pressures were weak.

Treasury modelling showed that the $23 a tonne price for carbon pollution would add about 0.7 per cent to consumer prices in 2012/13.

"For the July Inflation Gauge, utility prices rose 10.3 per cent, while food prices and airfares, so far, remain unaffected," Ms Beacher said.

"While our utility price rise is within Treasury estimates, the Gauge confirms that pricing pressure outside of the immediate impact of the carbon tax remains weak."

Ms Beacher said Australia was in the enviable position of having weak inflation and an economy that was growing stronger.

"This is an economic sweet spot and certainly backs up RBA Governor (Glenn) Stevens' glass half-full chirpy theme of late," she said.

"Australia is well-placed to absorb global shocks, and the RBA board can comfortably leave the cash rate unchanged at 3.5 per cent at the meeting tomorrow.

"Given the favourable inflation outlook, the RBA is in the enviable position to have the tools to ease if required, although by how much and when depends on what lies ahead for the troubled European Union."

All 15 economists surveyed by AAP predicted the central bank board would keep the official interest rate at 3.5 per cent on Tuesday.

Price increases in the inflation gauge were largest in utilities, reflecting the initial cost of the carbon tax, alcohol and tobacco, and newspapers, books and stationery, the survey showed.

They were offset by falls in the prices of automotive fuel, insurance and financial services, and holiday travel and accommodation.

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