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Reserve Bank to meet for the first time in 2017

petrol prices

Rising petrol prices and an increase in the tobacco excise are expected to have driven inflation higher during the final quarter of 2016.

But it’s unlikely to worry the Reserve Bank when its board meets in a fortnight for the first monetary policy meeting of the year.

While inflation remains relatively, it could threaten the economy if there was a renewed downturn.

The central bank is more likely to be torn between resurgent commodity prices, uncomfortably high house price growth, an unexpected economic growth contraction in the September quarter and disappointing jobless figures.

Economists expect Wednesday’s consumer price index to have risen by 0.7 per cent for the December quarter.

That would lift the annual inflation rate from 1.3 per cent to 1.6 per cent – still well below the Reserve Bank’s two to three per cent target band.

The more interest rate sensitive underlying measures of inflation, which smooth out volatile price swings, are expected to show an average quarterly rise of 0.5 per cent for 1.6 per cent over the year.

Such outcomes would be similar to central bank projections in November and would unlikely have immediate implications for interest rate policy.

Financial markets see little chance of a central bank interest rate move for most of 2017 – at this stage – after the two cuts last year.

But they are factoring in a 40 per cent risk of an increase in November.

Paul

The author Paul