Lower petrol and banana prices could bring Australia's heady annual headline inflation rate down to below two percent by the middle of 2007, a central bank official said Tuesday.
Just weeks after the Reserve Bank of Australia hiked interest rates a third time for 2006, head of economic analysis Tony Richards said the consumer price index would likely fall over the next year as recent price "shocks" eased. "Headline inflation has recently been close to four percent," Richards told an Australian Business Economists function in Sydney.
"But it would not be surprising to see a rate with a two in front of the decimal place relatively soon, as falling petrol prices flow through into the CPI data," he said. The RBA official's optimistic forecasts come after official figures showed headline CPI rose 0.9 per cent in the three months to September for an annual rate of 3.9 per cent. Such a drop would bring the inflation rate back within the RBA's targeted range of two to three percent although Richards predicted even greater movement was possible.
"Assuming world oil prices remain around current levels, we cannot rule out the possibility that the headline rate might even have a one in front of the decimal place, by around mid-2007, when falls in banana prices are also included," he said.
Richard's said this outlook was "essentially unchanged" from the RBA's November quarter monetary policy statement, which forecast near-term underlying inflation of around three percent. Bad weather earlier this year practically destroyed the country's banana crop, sending prices rocketting and putting pressure on the food component in overall CPI.
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