Australian rising utility costs drive PPI higher than forecast in Q3

21:13, October 25, 2010      

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The Australian Bureau of Statistics (ABS) on Monday reported the producer price index (PPI) at the final stage of production rose 1.3 percent in the third quarter and rose 2.2 percent over the 12 months to the end of September.

The outcome was higher than most economists had forecast due to sharply rising utility cost.

The market forecast was for a 0.5 percent rise for the quarter and a 1.4 percent rise for the year.

However, the unexpectedly PPI increase might not edge the Reserve Bank of Australia (RBA) towards an interest rate rise to combat inflationary pressures, economists say.

Economist Savanth Sebastian from Commsec, Australia's leading Internet broker, said it was clearly the utility charge that drove the result.

"Prices for electricity, gas and water were up almost 9 percent, " he said.

Senior economist Spiros Papadopoulos from National Australia Bank, one of the top five banks in Australia, said the PPI was a little bit stronger than market forecasts.

The PPI is a major component of the key measure of inflation, the Consumer Price Index (CPI), due on Wednesday.

But Papadopoulos said the relationship between the PPI and the CPI was not very strong.

He said he would still expect the RBA to be raising rates by the end of the year.

RBA's aim is to keep inflation in a target band of two to three percent.

Economists say if the underlying inflation figures are in line with the RBA's expectation of 2.5 percent to 2.75 percent, then the probability of a 0.25 percent cash rate increase on Nov. 2 is high.



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