Consumers see inflation staying within RBA target

The median expected inflation rate dropped this month compared to July, most likely driven by the economic turmoil in the US and Europe, as well as the domestic stock market. Flickr/Krug6

Consumers have softened their expectations on price rises, with a new survey showing that more people this month think inflation will stay within the Reserve Bank’s target compared to a similar survey done last month.

The results indicate more consumers think the economy is slowing down.

A survey of 1200 “mums and dads” consumers conducted by the University of Melbourne’s Melbourne Institute of Applied Economic and Social Research found that the proportion of respondents expecting annual inflation to stay within the Reserve Bank’s annual target of 2-3% increased to 16.6% in August, up from 13.3% in July.

The survey was done last week, when bad economic news out of the U.S and Europe sent share markets tumbling.

“This may be a reaction to the waves of negative news − there was news about "plummeting” share markets following the United States credit rating downgrade, news about contracting retail sales, and news about the RBA lowering their GDP growth forecast for 2011,“ said Dr Michael Chua, a Research Fellow at the Melbourne Institute.

Markets remain volatile this week but have recovered slightly since last week’s big drops.

"I would expect a slightly different answer if the survey was done this week but the overall picture at the moment is on the downward trend,” said Dr Chua.

The overall expected inflation rate fell to 2.7% in August from 3.4% in July.

A state-by-state analysis showed that Queenslanders foresee the fastest price rises, with a median expected inflation rate of 4%.

“Maybe this reflects a recovery from the natural disasters that occurred earlier this year,” said Dr Chua.