Inflation figures ease rate pressure

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Interest rates may remain stable until the end of the year following better-than-expected inflation figures.

A number of economist concur that the CPI figures released by the Australian Bureau of Statistics means that the RBA will almost certainly hold interest rates in August – and that this may well continue for fear of damaging the housing recovery.

"The June 2010 quarter update for the Consumer Price Index (CPI) came in lower than market expectations and offers no evidence of inflationary pressures getting out of hand," said the Housing Industry Association's chief economist, Dr Harley Dale.

"There is no need for a further rate hike to be announced next week or indeed at any time through the remainder of this year. It is appropriate that rates are kept on hold in light of mounting evidence that the new home building recovery will run out of steam and ongoing uncertainty regarding the post-stimulus trajectory of the domestic economy."

The headline rate of inflation rose by 0.6% in the June quarter, with the full-year figure at 3.1%. That meant the RBA-adjusted rates sat at 0.5% for the quarter and 2.7% for the year – a fall from the March figures and well within the RBA's inflation target.

BIS Shrapnel's chief economist, Richard Robertson told Broker News that the CPI figures are 'unequivocally good news'.

"The underlying rate for the last quarter was less than 0.7%, which was really the trigger for interest rate action. My guess is that the RBA won't raise rates, especially with the ongoing economic uncertainty overseas. Putting up interest rates could also kill the recovery in housing, and that's not something that the RBA wants to do."

Property-related price rises were among the most significant increases in the quarter, with rents increasing by 1.1% and house purchases at 0.6%.

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