By Jacob Greber
Jan. 19 (Bloomberg) -- An index measuring Australian inflation fell for a third month to the slowest since May 2005, boosting speculation slowing economic growth may trigger deflation.
Consumer prices rose 2.2 percent from a year earlier, after climbing an annual 3 percent in November, according to the monthly gauge released by TD Securities Ltd. and the Melbourne Institute in Sydney today. Prices fell 0.2 percent from November, when they slid 0.6 percent.
Slower inflation adds to evidence Australia’s economy faces its first recession since 1991 after gross domestic product rose at the weakest pace in eight years in the third quarter. The slump increases pressure on Reserve Bank Governor Glenn Stevens to add to last year’s interest-rate reductions, when he cut borrowing costs by three percentage points to 4.25 percent.
“The momentum of prices suggests that deflation risks rather than concern about inflation could be more pronounced in the first half of 2009,” said Joshua Williamson, a senior strategist at TD Securities in Sydney.
“The mix of recessed economic conditions and sharply falling inflation suggests more interest-rate reductions are inevitable.”
The biggest decrease in the index came from falling prices for gasoline, fruit and vegetables, today’s report showed. Those declines were partially offset by higher costs for rents, holiday travel and accommodation.
Official Gauge
The government releases its official quarterly inflation report, 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 peaked in the fourth quarter and will fall back within his target range of 2 percent to 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
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