Index tipped to put inflation fears on backburner

Worries about inflation are almost certain to remain on the backburner - probably on their lowest simmer in years - when June quarter Consumer Price Index figures are released on Thursday.

The market is expecting the index to rise by 0.5 per cent quarter-on-quarter, taking the annual inflation rate to 1.8 per cent, while the Reserve Bank expects 0.4 per cent and 1.7 per cent.

"The weak domestic economy, the opening up of significant spare capacity and a turn in the labour market are now clearly manifesting in reduced pricing pressure," ANZ economists said last week. ANZ expects a quarter-on-quarter figure of 0.3 per cent and an annual rate of 1.6 per cent.

Non tradeable inflation, which captures domestic inflation pressures, may well fall to an eight-year low, ANZ said, and despite a 3.5 per cent increase in petrol prices, tradable inflation was also likely to be muted.

BNZ economist Mark Walton said while oil prices had shown some lift, so had the dollar over roughly the same period, "so it might all come out in the wash".

BNZ is picking 0.8 per cent quarter-on-quarter and 2.1 per cent for the annual rate. It expects something similar - 0.7 per cent to 0.8 per cent - for the September quarter which would take the annual rate to 1.3 per cent, what it expects will mark the trough.

"Inflation has definitely been pushed to the backburner for the moment, and while the Reserve Bank will be as keen as ever to see these numbers, the reality is there is absolutely no pressure for them to worry about interest rates in the context of where inflation is at the moment or where it's going to be over the short to medium term."

Deutsche Bank chief economist Darren Gibbs was tipping a 0.6 per cent quarter-on-quarter increases and a 1.9 per cent annual rate with risks around that estimate skewed slightly to the downside.

"Looking ahead, at this stage we expect the headline CPI to rise a further 0.7 per cent quarter-on-quarter in quarter three, which would see the annual rate decline further to 1.0 per cent. In our view inflation is likely to remain between 1 per cent and 2 per cent over the subsequent 12 months."

PRICE LIST

CPI predictions for June quarter:

* Reserve Bank: +0.4 per cent
* ANZ: +0.3 per cent
* BNZ: +0.8 per cent
* Deutsche Bank: +0.6 per cent
* Poll of economists: +0.5 per cent