Consumers expect inflation to fall

Australian consumer expectations for price movements fell moderately in August, but forecasts for inflation are in the central bank’s comfort zone, a survey shows.

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The Melbourne Institute survey of consumer inflationary expectations found the median expected inflation rate fell to 2.8per cent in August, from 3.3 per cent in July.

It was the fourth straight monthly fall for inflationexpectations.

In the survey, the proportion of consumers expecting inflation to be within the central bank’s two to three per cent target band had fallen to 18.9 per cent in August, from19.1 per cent the month before.

This was above the 12-month average of 17.9 per cent.

The Reserve Bank of Australia (RBA) uses monetary policy, or interest rates, to keep inflation within its target band over the economic cycle.

The RBA kept the overnight cash rate on hold at 4.5 per cent on August 3.

The steady rate had been expected by market economists after the June quarter consumer price index (CPI) came in at a lower thanexpected annual pace of 3.1 per cent.

Melbourne Institute research fellow Michael Chua said there wereless respondents expecting inflation to rise.

The proportion of people expecting to rise was at 73.5 in August, compared to 78.9 per cent in July.

“This month’s inflationary expectations number was clearly are flection of a weaker than expected June (quarter) CPI,” Dr Chuasaid in a statement.

The number of respondent expecting inflation to stay the same rose to 16.6 per cent in August, from 11.4 per cent the previous month.

The survey of 1,200 respondents was carried out between August 2 and August 8.

Nomura Australia said consumer sentiment had risen back to “elevated levels” last seen before the current interest rate hiking cycle began in September 2009.

Meanwhile, the Westpac – Melbourne Institute survey of consumers’ unemployment expectations fell for the second consecutive month in August, indicating an improved labour market outlook.

The unemployment expectations index fell 10.2 per cent in August to 100.56, following a 6.9 per cent fall in July.

The cumulative 16.4 per cent fall in unemployment expectations over the past two months coincided with a cumulative 17 per cent rebound in consumer sentiment.

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