By Jacob Greber
Feb. 2 (Bloomberg) -- An index measuring Australian inflation rose in January as prices for drugs, utilities, public transport and domestic holiday travel climbed.
Consumer prices rose 0.8 percent from December, when they declined 0.2 percent, according to the monthly gauge released by TD Securities Ltd. and the Melbourne Institute in Sydney today. Prices increased 2.7 percent from a year earlier, after climbing an annual 2.2 percent in December.
Today’s report suggests inflation pressures remain, even though the economy may already be in its first recession since 1991 and as the deepening global slowdown cuts prices of commodities from oil to copper. Reserve Bank Governor Glenn Stevens will reduce the benchmark interest rate tomorrow to the lowest level since the 1960s, economists forecast.
“While the 0.8 percent increase in the inflation gauge is superficially high, we would need to see several more months of large price rises to be concerned about a rekindling of inflation pressure,” said Joshua Williamson, a senior strategist at TD Securities in Sydney.
The January increase, partially driven by “one-off” gains in public transport fees, is “unlikely to discourage the central bank from cutting the cash rate by 100 basis points,” Williamson said.
Governor Stevens and his board will reduce the benchmark rate by one percentage point to 3.25 percent when they meet tomorrow, according to 11 of 20 economists surveyed by Bloomberg News late last week. The rest expect a three-quarter point cut.
Business Investment
“The increasing severity of the global recession, the pending collapse in business investment in Australia and prospects for further price moderation strongly suggest that tomorrow’s rate cut will not be the last,” Williamson said.
Australian manufacturing contracted for an eighth month in January as companies received fewer orders and fired workers, Australian Industry Group and PricewaterhouseCoopers said today.
The performance of manufacturing index rose 2.9 points to 36.6 from December, according to AIG. A reading below 50 signals manufacturing is shrinking.
The biggest decrease in the inflation index came from falling prices for drinks, snack foods, bread and computer equipment, today’s report showed. The price of fuel was 0.4 percent higher in January, paring its annual decline to 26 percent. Rents rose 1.5 percent in January and 15 percent from a year earlier.
Official Gauge
The government releases its official first-quarter inflation report, the consumer prices index, on April 22. Annual inflation slowed to 3.7 percent in the fourth quarter from 5 percent in the previous three months.
Stevens forecast in December that slower economic growth will bring annual inflation back within his target range of between 2 percent and 3 percent this year.
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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