Australia Inflation Gauge Rises in November

Australian inflation accelerated further above the central bank's comfort zone in November as petrol prices climbed, a private survey showed on Monday, suggesting interest rates might yet have to rise further.

The TD Securities-Melbourne Institute monthly inflation gauge rose 0.3 percent in November, following a matching increase in October. Annual inflation picked up to 3.4 percent, from 3.3 percent, the fastest pace since March and above the top of the Reserve Bank of Australia's (RBA) 2 to 3 percent target band.

"Inflation remains a persistent force," said Joshua Williamson, a senior economist at TD.

He noted the trimmed mean of the gauge, a statistical measure of underlying inflation, rose 0.4 percent in November, lifting the annual rate to 3.6 percent, from 3.2 percent the month before.

The central bank has already raised its forecasts for underlying inflation, seeing it reach 3.25 percent by mid-2008 from 3.0 percent currently. Seeking to cool the economy, the RBA raised rates in August and November, taking them to an 11-year peak of 6.75 percent.

The RBA's policy board holds its December meeting on Tuesday but no one expects a further tightening so soon after the last move and while the squeeze in global credit markets still clouds the outlook for world growth.

Still, most analysts suspect rates will have to be lifted again given the strength of domestic demand.

Gross domestic product figures out on Wednesday are expected to show the economy grew a rapid 4.8 percent in the year to the third quarter, well above the pace that analysts consider sustainable.

"On inflation grounds alone, the case for a further interest rate rise is compelling, but the market ructions suggest a cautious approach from the RBA," said TD's Williamson.

Contributing most to the overall increase in November was a sharp rise in the price of petrol, and rises in the prices of deposit and loan facilities, fruit and rental accommodation.

The price of petrol for the year to November rose by 17.5 percent, while the cost of rental accommodation rose by 7.5 percent.

These increases were partially offset in November by falls in the prices of vegetables, holiday travel and accommodation, and audio, visual and computing equipment.

Inflation excluding volatile fuel, fruit and vegetable prices, rose by 0.1 percent in November, while the annual pace slowed to 3.2 percent from 3.4 percent.

Based on the inflation gauge, the Melbourne Institute predicted the official consumer price index would rise by a chunky 0.95 percent in the three months to end December.