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October 28th 2009
CPI rise makes rates hike "a sure bet"

In the following report, Townsville based economist, Colin Dwyer from DS Enconomics, looks at the latest inflation figures and their likely impact on mortgages and other costs of living in north Queensland.

The ABS Consumer Price Index rose 1.0% in the September quarter 2009, compared with a rise of 0.5% in the June quarter 2009. In annual terms the CPI rose 1.3% through the year to September quarter 2009, compared to an annual rise of 1.5% to June quarter 2009. Core inflation rose 0.8% for the September quarter and 3.2% for the year.

The CPI figures make a 0.25% rate rise a sure bet on Melbourne Cup. We expect further rate rises in December and February of probably 0.25% each. Combined, that will make a rise of 1% in the cash rate by February.

In Townsville home purchase costs have increased as interest rates start to rise again and the first home owners grant was reduced in October. The 0.25% cash rate increase in October represents $52 a month increase in repayments for a $250,000 loan.

Rents for 3 bed room houses have remained static over the year at $320 per week. But rents for two bedroom units have risen 5.7% for the year to $280/week or by $780 per annum.

Basic household items such as Electricity, Water and Sewerage prices are likely to have increased in line or even more than the national growth of 11.4% and 14.1% for the quarter.

On the positive side, the recent appreciating Aussie dollar has helped reduce Unleaded petrol by about 10c/L in Townsville since early September. This has taken us back to pre fuel tax rebate prices of around 116c/L. This performance could be maintained if world oil prices remain at current levels. Fruit and vegetable prices have dropped by 5.4% and 5.6% respectively.

Colin Dwyer, DS Economics
www.dseconomics.com.au

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CPI rise makes rates hike
 
1 comments
 
David J
October 29th 2009
Brilliant. Here we are in the twenty first century and the only tool our great government has, or desires to use, for controlling the economy is interest rates. And what drives it? The people in the cities with good paying jobs driving up demand. Its a great idea in theory. Doesn't work too well in areas that have high unemployment however, or areas that have a reliance on more favorable exchange rate for tourism or exports. And to top it off you have the Big 4 who have not only been underwritten by the tax payer, but make obscene profits, cry poor and undermine the governments lack lustre efforts by increasing interests rates irrespective of official cash rates. Economies like Cairns and Townsville are effectively neutered and will most likely fail to recover in any meaningful time frame if things donít change. First port of call is to stop using the blunt tool of interest rates to control the community without other measures. Differential tax rates dependent upon where you live would be a good start. That could even assist in getting doctors to remote centres without too much trouble. Tax free savings on deposits for community projects is an easy fix too and directs funds to infrastructure rather than the banks playing the currency markets for a return. One canít help but think itís all too hard as the tyranny of distance from Canberra hides the need to make a difference. Perhaps thatís the strategy the government desire, to send the message to the "Boat People", donít bother landing we will be cactus soon enough.


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