Aussie Inflation Sneakily Creeping Upward

Throughout the financial crisis the Australian real economy has managed to remain somewhat resilient, largely thanks to its reliance on commodity exports to its nearby Asian neighbor, China.

Despite that strength, and 2009’s substantial appreciation of the Australian dollar relative to its US cousin, Australia is sneakily developing signs of inflation. The measure is now at a recent high according to The Sydney Morning Herald:

“December’s annual rate rose to 2.6 per cent – the highest in nine months.

“‘After a period of clear disinflation over the year from mid-2008, inflation has now not only bottomed out, but early signals suggest some emerging upside pressure,’ said TD Securities senior strategist Annette Beacher.

“Ms Beacher said the quickening pace of price rises justifies the [Reserve Bank of Australia] RBA’s trio of consecutive 25 basis point rate rises, starting in October. The moves took the interest rate to 3.75 per cent, adding about $140 a month to the average repayment on a $300,000 mortgage… 

“Currently, Credit Suisse markets are pricing in a 70 per cent chance of a 25 basis point increase at the RBA’s February 2 meeting. Such an increase would lift the interest rate to 4 per cent.”

Unlike the US, Australia has a falling unemployment rate, which registered in at 5.5 percent last week. Yet, like the US, it’s employed a cash stimulus and is possibly seeing a taste of the consequences.

Read more details about Australian economy and expected interest rate increases in The Sydney Morning Herald’s coverage of the nine-month inflation high.