Falling AV prices should keep interest rates on hold

By James Wells

CANBERRA: Interest rates are now likely to stay on hold after today’s inflation statistics – the consumer price index (CPI) – showing that overall prices fell in the fourth quarter of 2006, including a big drop in the price of AV and computing products.

Although the price of Australian goods in the final quarter of 2006 was 3.3 per cent higher than the same period a year earlier, prices fell 0.1 per cent in the fourth quarter of 2006 compared to a rise of 0.9 per cent in the third quarter of 2006.

The Reserve Bank of Australia, which has increased interest rates three times over the last 12 months to a six-year high of 6.25 per cent, is unlikely to increase rates further when the company meets in two weeks even though the overall inflation figure is higher than the 2-3 per cent target range.

Audio visual products and computing suffered one of the largest falls with prices declining by 2.7 per cent in the three months to 31 December 2006.

The decline in bananas and petrol were reflected in a 12.4 per cent decline in automotive fuel which is under $1.00 per litre in some states and fruit which declined by 5.2 per cent.

Over the 12 months to December 2006, food prices increased by 8.6 per cent overall – with the shortage of bananas following the Cyclone Larry in far north Queensland driving fruit prices up by 72 per cent for the year.

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