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(CEP News) - Australia's annual inflation rate is expected to level off in the first quarter, with the RBA's preferred measure - the trimmed mean - forecast to come in above the RBA's 2-3% target band.
The trimmed mean is expected to grow 3.8% year-over-year, against a 4.2% inflation rate in the fourth quarter of 2008. Headline inflation is expected to fall to 2.8% annually, against a 3.7% rate in the prior quarter. Even though the trimmed mean is expected to remain above the RBA's target band, George Worthington, an economist at IFR Markets, said the bank won't change its policy, which will eventually involve bringing interest rates down. "With the cash rate target still at 3.00%, the RBA has plenty of room for manoeuvre, unlike many other central banks that are staring at quantitative easing," he said. Furthermore, he added, inflation is expected to fall in coming months and nothing other than a much higher-than-expected result on Wednesday (Tuesday night EDT) will startle the central bank. Bill Evans, an economist at Westpac, agreed. "Inflation data is highly unlikely to affect policy decisions through the course of 2009," he said. Quarter-over-quarter inflation rates are expected to climb based on seasonal price increases in goods and services, such as education, health care, electricity, gas, fruits and vegetables, said Riki Polygenis, an economist at ANZ Bank. She said the impact of the plunge in the Australian dollar in the fourth quarter will be felt in Q1, with firms forced to absorb some of the cost increase to their margins from the increased prices of imported goods. The Australian Bureau of Statistics will release inflation results on Tuesday at 9:30 p.m. EDT. By Megan Ainscow,
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