14 Jul 2014

Economists predict 1.8% inflation rate

6:58 am on 14 July 2014

Economists are expecting annual inflation for the year ended June will come in slightly ahead of the Reserve Bank's expectations, cementing in the need for a further hike in interest rates later this month.

Economists on average are expecting a 0.4 percent increase in the Consumers Price Index for the June quarter, taking the annual rate to 1.8 percent.

The central bank's latest forecasts predicted a 0.3 percent quarterly increase for an annual rate of 1.7 percent.

Westpac economist Michael Gordon said how the government statistician accounts for falling telecommunications prices could prove to be the wild card - he's predicting a 2 percent decline but said there was a great deal of uncertainty about the impact recent price cuts.

Mr Gordon said with the exception of rising food and electricity prices, he didn't see much evidence of inflation accelerating.

He said the Wednesday figures were expected to show annual inflation rising to 1.8 percent, but that was still below 2 percent which is the level that the Reserve Bank targeted as its midpoint.

Mr Gordon said food prices have been increasing slightly after being fairly flat over the last couple of years and the annual increases in electricity prices will come through.

But he said it was looking fairly similar to the first three months of this year.

Mr Gordon said the next inflation figures could have some bearing on the tone of the Reserve Bank's next statement.