Australian Consumer Inflation Expectations eased to 4.4% in September from 4.9% in the preceding month. Forecasts for price growth have eased 25.4% having peaked in July as crude oil prices reached a record $147/barrel. Inflation expectations have eased on slowing economic activity at home and abroad as well as sharply lower fuel prices. The Australian economy has apparently managed to avoid the dreaded “second-round” effect where expectations of higher prices in the future cause employees to demand higher wages and thereby lock in inflation until job contracts can be renegotiated. Indeed, expected hourly wage changes ticked lower in all but one of the surveyed sectors.
Easing upside pressure to both real and expected inflation levels will allow the Reserve Bank of Australia to continue with hits campaign to cut interest rates and support economic growth. Bond yield forecasts call for rates to decline 75 basis points to bring benchmark rates to 6.25% by the second quarter of 2009.