TD Securities’ Australian Annual Inflation Index Falls to 3%

By Jacob Greber

Dec. 1 (Bloomberg) -- An index measuring Australian annual inflation fell in November to the lowest level in more than a year, stoking speculation the central bank will slash borrowing costs to avoid the threat of deflation.

Consumer prices rose 3 percent from a year earlier, after climbing an annual 3.9 percent in October, according to a monthly gauge released by TD Securities Ltd. and the Melbourne Institute in Sydney today. Prices fell 0.6 percent from October, when they dropped 0.2 percent.

Slower inflation gives Reserve Bank Governor Glenn Stevens more scope to cut borrowing costs to cushion the economy against fallout from a global recession. Policy makers will probably cut the benchmark interest rate by three quarters of a percentage point to 4.5 percent tomorrow, adding to the two percentage points of reductions since early September, the biggest round of easing since a recession in 1991, according to 15 of 20 economists surveyed by Bloomberg News.

“The growing risk of broadly based deflationary pressure and the pathetically weak nature of global financial markets have encouraged us to change our forecast for Australian interest rates,” said Stephen Koukoulas, global strategist at TD Securities in London.

“So extreme is the news on inflation and the recent global economic and market trends, we now anticipate the Reserve Bank lowering the cash rate to 2.5 percent by the middle of 2009.”

Cheaper Gasoline

The biggest decrease in the index came from tumbling prices for gasoline, domestic holiday travel, accommodation and wine, today’s report showed. Those declines were partially offset by higher housing rents.

The government releases its official quarterly inflation report for the fourth quarter, the consumer prices index, on Jan. 28. Annual inflation accelerated to 5 percent in the third quarter, the fastest pace since 2001.

Stevens forecast in November that inflation will fall back within the bank’s target range of between 2 percent and 3 percent in 2010.

The Melbourne Institute is a research unit of Melbourne University and TD Securities is a division of Toronto-Dominion Bank, one of Canada’s largest lenders. The monthly inflation index measures the prices of 1,000 goods and services.

To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net