Inflation:our last good figures?

Sharp falls in fruit and vegetable prices helped Australians to enjoy a brief respite from inflation over the past few months.

The Australian Bureau of Statistics reported that inflation, measured on the Consumer Price Index, did not rise at all in the final three months of last year.

On the same measure, inflation rose by 3.1 per cent over 2011, as a whole.

The Bureau also reported that the nation’s underlying inflation rose by 0.6 per cent in the December quarter and 2.6 per cent in the 12 months to the end of December.

The Reserve Bank uses a similar measure, which also excludes volatile items, like fruit prices, when it sets interest rates.

It aims to keep Australia’s underlying inflation between 2 and 3 per cent, over the course of a business cycle.

So the latest underlying inflation figures suggest that another rate cut is likely, when the bank’s board meets early next month, to review rates.

Although slow sales helped to keep most prices rises moderate last year, there were exceptions.

The price of insurance and financial services, for example, rose by 5.6 per cent lin 2011, as the costs arising from the floods in Queensland and New South Wales early last year worked their way through the system.

These can be expected to rise again this year, as those areas have, once again, been hit by serious floods.

The Bureau also reported that education costs leapt by 5.8 per cent last year.

Overall, though, the Bureau’s inflation figures reflected relatively good results.

Good economic figures, though, are likely to be scarce in the months ahead.

Major forecasters, including the International Monetary Fund, are now warning of imminent recession in Europe.

Australia’s Treasurer, Wayne Swan, says that must be seen as a warning to all countries.

Meanwhile, the lates Westpac Melbourne Institute leading index, which has just been released, is pointing, very clearly, to an even slower economy in Australia, over the months ahead.