Australian prices jump 0.5 per cent in March

SYDNEY - Australian consumer prices jumped 0.5 percent in March, increasing the risk of a further interest rate hike by the central bank on Wednesday, a private survey showed on Monday.

The TD Securities-Melbourne Institute Monthly Inflation Gauge showed prices of consumer goods and services rose 0.5 percent in March, following a 0.2 percent increase in February, to be 2.5 percent higher than a year earlier.

Contributing most to the overall increase were rises in the cost of meat and seafoods, automotive fuel and holiday travel. These were partly offset by deceases in the cost of rents, fruit and vegetables.

"The Reserve Bank will be worried by the acceleration in inflation over the past few months. The jump in inflation from 2.0 percent in the year to December 2004 to 2.5 percent in the year to March 2005 supports the RBA's recent action to increase official interest rates," said Stephen Koukoulas, chief strategist at TD Securities.

"It also adds weight to the case for a further interest rate rise this week, even allowing for the slump in consumer sentiment and ongoing softness in the housing market. The RBA is more likely than not to hike interest rates on Wednesday. "

The Reserve Bank of Australia holds its monthly board meeting on Tuesday.

It raised its cash rate by 25 basis points to 5.5 percent on March 2, citing the risk to inflation from higher wage demands in a tight labour market and from capacity constraints after 14 years of continuous economic expansion.

Any rate change would be announced at 9:30 a.m. on Wednesday (2330 GMT) on Tuesday.

Excluding volatile items -- automotive fuel, fruit and vegetables -- the core measure on the inflation gauge rose 0.3 percent in March, to be 2.4 percent higher than a year earlier.

"Admittedly, inflation is coming from a low base and the jump in petrol prices may be transitory, but the RBA is worried about a lift in inflation expectations and some upside wages risks from the skill shortage in the labour market," Koukoulas added.

University of Melbourne economist Don Harding, the co-creator of the Inflation Gauge, said given that prices rose 1.4 percent over the first three months of 2005 it was highly likely that year-ended inflation would move towards three per cent over the course of 2005.

The central bank has an inflation target of 2 percent to 3 percent.

- REUTERS