28 July 2010 | By: Charmaine Tan

Australia’s consumer price growth slowed in Q2. The consumer price index rose 0.6 per cent from Q1, less than the previous forecast of 1 per cent. Prices increased 3.1 per cent from 2009. Downward pressure on prices was felt in the lifestyle, food and communications sectors.

The weak inflation caused the Australian dollar to fall 0.8 per cent this month. The Australian dollar was trading at US$0.89 (*S$1.22), down from US$0.90.

Recreation costs fell by 1.8 per cent in Q2 and food prices dropped by 0.3 per cent. Communications costs fell 0.1 per cent. In contrast, alcohol and tobacco increased 5.9 per cent. Tobacco tax and an increase in healthcare costs caused a mild increase in inflation.

Core inflation rose 2.7 per cent in Q2 from the same period last year, down from an earlier projection of two to three per cent. This is well within the Australian government’s aim of keeping inflation rates at two to three per cent. It gained 3 percentage points in Q1.

The Reserve Bank of Australia is expected to put a hold on interest rates for at least the next three months, after the bank hiked interest rates six times since October 2009.

Concern that economic rebound after the global recession will trigger inflation led to policy makers across the Asia-Pacific region to increase interest rates.

*Exchange rate correct as at 28 July 2010