Borrowers can rest easy for now

Borrowers can rest easy until at least the second half of the year, quite possibly longer, knowing that interest rate rises are off the agenda. The March quarter inflation result saw an unexpected dip in inflation at the start of 2007, removing for now the Reserve Bank's concerns over price pressures and any leaning it may have had to lifting rates again. The Consumer Price Index dropped sharply to an annual rate of 2.4 per cent after average price rises in the three months to March rose only 0.1 per cent. A high Australian dollar, which makes the enormous volume of imports we like to rake in each month cheaper, looks to have combined with falling banana prices to offset the obvious inflationary pressures in other parts of the economy. The measure of inflation at the wholesale level, the Producer Price Index, was also contained in the March quarter. The question is, to what degree the very high dollar and the easing in volatile and one-off items mask any underlying build up in inflationary pressures from a strong economy. The underlying measure of inflation, used by the RBA in its rate deliberations, has fallen slightly but still stands at 2.7 per cent annual after a quarterly rise of 0.5 per cent. No great problem at that level but the RBA will be watching closely for any up-tick towards 3 per cent for the rest of this year. Given the latest fall in inflation and the economy's demonstrated resilience to inflationary pressures in recent years it may be that we have seen the last rise in interest rates for this cycle. But don't bet too much money on it yet.