CPI figures mean rates on hold

An increase in interest rates next month is less likely following a reported fall in inflation. Data released by the Australian Bureau of Statistics put inflation for the year to December at 3.3 per cent While this is still above the central bank's 2 to 3 per cent target range it is a much better trend as the figures actually fell by 0.9%. This was largely thanks to a drop in petrol and banana costs.

Over the twelve months to December quarter 2006, food prices rose 8.6 per cent, mainly due to a sharp rise in fruit prices (+72.2%). The only significant fall in food prices was for poultry (-3.0%). Fruit prices rose dramatically due to the weather conditions affecting Australia.

The most significant price falls for the quarter were automotive fuel (-12.4 per cent), fruit (-5.2 per cent), pharmaceuticals (-5.0 per cent) and audio, visual and computing equipment (-2.7 per cent).

The most significant offsetting price increases were domestic travel and accommodation (+6.2 per cent), vegetables (+4.1 per cent), rents (+1.0 per cent) and house purchase (+0.5 per cent).

So what does this mean for the market ? Well quite simply it means there is less likely a chance for a rate rise which means that there is more stability in the market. Stability should lead to a continuing rally in the market for at least the short term.

Oil has began to rise again this month but it is still at a very low price compared to a year ago. I expect that oil will again be a major impact on inflation in the next few months and this may lead to a rate rise further down the track. But we will need to wait and see ....

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Good Luck investing.