Inflation peak key to rate rise chances

The October board meeting of the Reserve Bank has come around quickly, too quickly really to consider that enough has changed from the last meeting to justify an increase in interest rates. The foundations are there to ensure a third rate rise this year is under discussion but key data, particularly on inflation, that would be needed to prompt RBA action won't be out until later this month. So if we are to get another rate rise, it's more likely to be a Melbourne Cup Day hangover in November than a school holiday dampener next week. At the moment, the signs are all too conflicting on where the economy is headed next year so a lot will depend on the June quarter inflation result out in a few weeks. Given how high inflation was the previous quarter, the RBA under new boss Glenn Stevens will have low tolerance for high CPI numbers. The problem with the inflation numbers are they are old hat by the time they get released, three months after the event. And there are now signs inflationary pressures may have peaked for now with the price of oil on the way down and the US economy leveling off. The Melbourne Institute inflation gauge for September offers a clue here, staying steady this month after a worrying 0.6 per cent jump in August. A poor official result for the June quarter might be viewed with caution by the RBA, but not too much. Being tough on inflation with higher interest rates is the game it plays best.