Inflation increase meets expectations, hopes of Melbourne Cup rate cut rise: Midday Roundup

Consumer inflation rose by 0.6% in the third quarter, from 0.8% the previous quarter, in a result that met expectations and strengthens hopes the central bank will cut rates next week.

The CPI data prompted a half a cent fall in the Australian dollar to $US1.0377, which had risen to as high as $US1.051 this week.

But Tim Waterer, senior FX dealer at CMC Markets, says a bounce to $US1.04 and beyond is still possible this week, depending on the outcome of European debt negotiations.

“Any equity strength in the latter part of the week will see the AUD supported despite the odds of a rate cut next Tuesday now heightened,” Waterer says.

The Australian Bureau of Statistics figures show the trimmed mean CPI rose by 0.3% in the third quarter, for annual growth of 2.3%, while the weighted median CPI rose by 0.3% for an annual rise of 2.6%.

But the headline rate is 3.5%, still well above the RBA’s targeted range of 2-3%.

The figures follow comments from the RBA yesterday that the outlook for inflation was less concerning these days, given global economic troubles and recent slices to underlying inflation forecasts.

“Inflationary pressures, which had declined through 2010, appeared to pick up noticeably in the first half of 2011 and the prospects were that inflation would rise to above the target range of 2-3% over the next couple of years,” RBA deputy governor Ric Battellino said yesterday.

“The downward revisions to recent estimates of underlying inflation and the softer global economic outlook have made the outlook for inflation less concerning, providing scope for monetary policy to be supportive of economic activity, if needed.”

The CPI figures also follow the producer price inflation figures showing a 0.6% rise, from the previous quarter’s jump of 0.8%.

Shares flat after weak Wall Street lead

Meanwhile, the Australian sharemarket has opened lower this morning after a weak night on Wall Street where investors are still concerned over the sovereign debt crisis in Europe.

The benchmark S&P/ASX200 index was down 19 points or 0.5% to 4208.0 at 12.00 AEST, while the Australian dollar fell half a cent after the official inflation figures were released, down to $US1.04c.

AMP shares dropped 0.48% to $4.15, while Commonwealth Bank shares rose 0.1% to $48.77. Westpac shares fell 0.55% to $21.88, as NAB shares rose 0.04% to $25.68.

In the United States, the Dow Jones Industrial Average fell 1.7% to 11,706.6.

Also in the United States, a key survey of consumer confidence fell in October with more Americans worried about unemployment. The Conference Board said its index fell from 46.4 to 39.8.

“Consumer confidence is now back to levels last seen during the 2008-2009 recession,” Lynn Franco, consumer research director of the Conference Board, told AAP.

“Consumer expectations, which had improved in September, gave back all of the gain and then some, as concerns about business conditions, the labour market and income prospects increased.”

Manufacturing must remain strong: Evans

Workplace relations minister Chris Evans told AAP this morning that he supports lower trade barriers and noted that local manufacturing must remain strong.

“It’s about ensuring we have got a local manufacturing base in Australia in designing and production, but we do want to be open to the world,” he said. “The Government does support proper employment practices in foreign countries.”

The comments come after Prime Minister Julia Gillard told a business forum that it wants to help liberalise trade for developing countries.

Toll tips challenging times to continue

Meanwhile transport company Toll Holdings has flagged further weakness in the retail and industrial sectors, but any weakness would likely be offset by strength in the resources sector.

Its news chief executive Brian Kruger told Toll’s annual general meeting that it was difficult to tip how the Christmas season would go for discretionary retailers.

“At this moment, it is still very difficult to predict how this will play out,” Kruger is quoted saying.

“However, there are parts of the domestic economy, particularly the resources sector, that we expect will offset any softness in those areas.”