Australia Inflation Expectations Rise for Second Straight Month in February

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By Jerin Mathew | February 14, 2013 5:03 PM EST

Australia inflation expectations rise for the second consecutive month

Inflation expectations in Australia have increased for the second consecutive month in February, according to the Melbourne Institute Survey of Consumer Inflationary Expectations.

The survey gauges the percentage change that consumers expect on the price of goods and services during the next 12 months.  

Consumers' expected inflation rate to hike to 2.2 percent in February from 2 percent in January. Nevertheless, the rate still remains within the Reserve Bank of Australia's (RBA) target inflation range of 2-3 percent.

"The consumer expected inflation rate has risen in two consecutive months for the first time since April 2012, by 0.4 percentage points in total," Viet Nguyen, a Research Fellow at the Melbourne Institute, said in a statement.

Nguyen added that, from an inflation-targeting perspective, there has not been enough evidence of strong inflationary pressure for the RBA to react. Consumers' expected inflation rates were 2.7 percent in February as against the 4.6 percent in February 2011 and 3.2 percent in February 2010.

Consumers' expectation for higher inflation over the next 12-month period indicates greater confidence in the economy though the retail sales declined for a third month in December and unemployment rate remained the same at 5.4 percent.

Following the news, the Aussie gained against the US dollar initially, but quickly retreated back to pre-release levels. The Australian currency is currently trading at US$1.0346, down 0.24 percent, as at 12.35 am ET.

On February 13, a survey by Westpac and Melbourne Institute showed that consumer sentiment in Australia rose 7.7 percent month-on-month in February, the biggest jump since September 2011.

The gain in February comes as the lower interest rates have started gaining more traction with the consumer. Between May and December in 2012, the central bank cut the cash rate four times, reducing the rate by 1.25 percentage points in total.

Earlier this week, a survey by National Australia Bank showed that an index of business confidence edged up to 3 in January from 2 in December. A separate survey by Roy Morgan Research revealed that business confidence in Australia in January increased by 7.7 points to 122.5 from December, the highest level since April 2011.

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