Inflation fears abate after peaking during flood crisis

INFLATION fears continue to moderate after spiking during the flood crisis in eastern Australia, a survey shows.

WORRIES about rising inflation continue to moderate after spiking during the flood crisis in eastern Australia, a survey shows.

The Melbourne Institute (MI) consumer inflationary expectations survey, released today, shows the median expected inflation rate stayed steady at 3.3 per cent in June.

"This month's survey results suggest that consumers view on future inflation might be shifting," said Michael Chua, a research fellow at the Melbourne Institute.

"The proportion of survey respondents expecting inflation to fall within the RBA's (Reserve Bank of Australia) target band decreased marginally to 15.7 per cent in June, from 16.1 per cent in May.

"The RBA's is to keep the inflation rate in the 2 to 3 per cent band on average over time.

The central bank last increased the overnight cash rate in November 2010 to 4.75 per cent.It has recently said it will look through any short-term effects on output and prices the floods have caused.

RBA governor Glenn Stevens said yesterday that the most recent analysis suggests underlying inflation was more likely to rise than fall over the next couple of years, and rate rises would be necessary at some point to keep price rises in check.

But Mr Stevens said the RBA board's view at the last monetary policy meeting, earlier this month, was that a rate rise was not needed yet.

The median expectation for inflation has been steadily falling since January, when it was at 4.6 per cent, the MI report shows.

According to the Australian Bureau of Statistics, consumer prices surged in the March quarter, beating market expectations, as flooding on Australia's eastern coast dented food and coal supplies.

The Consumer Price Index (CPI) rose 1.6 per cent in the March quarter for an annual inflation rate of 3.3 per cent, the ABS reported in May.