Wednesday, September 27, 2023
Homecentral banksAustralia's inflation spike creates dilemma for central bank

Australia’s inflation spike creates dilemma for central bank

A surprise spike in Australia's inflation rate will give the nation's central bankers pause for thought, analysts say, making it trickier to decide between keeping rates low to stimulate the economy and raising rates to pour cold water on frothy price rises.

Consumer prices rose 0.8 percent in the fourth quarter of 2013, taking annual inflation to 2.7 percent, at the upper end of the Reserve Bank of Australia's target of between 2 and 3 percent. Sharp increases in the price of fruit and vegetables, travel costs and tobacco were behind the overall increase.

(Read more: Has the tide turned for corporate Australia?)

Saeed Khan | AFP | Getty Images

slipped 0.7 percent on the news, while the Australian dollar strengthened to $0.8855 against the dollar, retreating from Monday's three-and-a-half-year low. The 15 percent fall in the Aussie over the past year has been a key factor behind rising prices, increasing the cost of imports.

Analysts told CNBC the higher-than-expected inflation number could encourage a more hawkish stance at the nation's central bank.

(Read more: 2014 a 'litmus test' for Australia economy: Goldman)


Most Popular