No Rise In Inflation….yet

Figures released this week showed Australia's headline Consumer Price Index rose by 0.3 % in the December quarter resulting in an annual inflation rate of minus 0.2%.

This figure, the lowest in almost 35 years, has virtually guaranteed that the Reserve Bank will be making no moves on rates at its monthly meeting next week.

However the signs are there that inflation is starting to make an upward move. Take out mortgage interest charges (down 6.6%) and car prices (down 3.2%) together with the 4.2% rise in import prices in the December 1997 quarter which are yet to flow through to the CPI and the picture looks rather different.

No doubt the Reserve Bank will be bearing this in mind as it looks to what inflation will be in 12 months time, but in the back of their minds will be concerns of the level of impact the Asian crisis will eventually have on the growth of our economy.

Take the Asian factor out of the equation and you could just about guarantee a strong level of growth, rising inflation and a good chance of a rise in rates before the end of the year.

All this is still quite probable, however the degree of economic carnage that is ravaging Asia cannot be swept aside as a small term blip but a situation that may well take up to 2 years before we in Australia fully feel the effects.