News Service from House Harris

Higher petrol prices lifts measure of inflation in Feb: survey

SYDNEY, March 2 AAP - Higher petrol prices in February lifted a measure of inflation for the second straight month, dampening the prospect of a March interest rate cut.

The TD Securities-Melbourne Institute inflation gauge rose by 0.7 per cent in February, taking the annual increase to 3.1 per cent.

The February result, coupled with the 0.8 per cent rise in January, represented the fastest back-to-back increase recorded in the six-and-a-half-year history of the inflation gauge.

Prices rose in 40 expenditure groups and fell in 12.

It was the first time in four months that the gauge has been above the Reserve Bank of Australia's (RBA) target range for inflation of between two and three per cent.

TD Securities global strategist and gauge co-creator Stephen Koukoulas said the breadth of price increases was very disconcerting and at odds with falling inflation recorded in areas such as the US and euro zone.

The RBA holds its monthly board meeting on Tuesday, with the central bank tipped to cut the 3.25 per cent cash rate by at least 25 basis points.

The RBA has already slashed official interest rates by 400 basis points since September.

But Mr Koukoulas said the survey, along with some better-than-expected data published last week, could sway the RBA to keep the official cash rate on hold.

"The RBA board, which meets tomorrow, will be a little uncomfortable with these inflation results and will no doubt consider the range of other less-bad indicators in recent weeks," Mr Koukoulas said in a statement.

"As a result, it may pause in the interest rate cutting cycle as it waits for the current fiscal and monetary stimulus to work through the economy."

Mr Koukoulas said the "catastrophic global economic climate" meant that further RBA interest rate cuts would be needed as some stage.

Helped by a weaker Australian dollar, petrol prices rose by 16 per cent in February, the survey said, but were still about 11 per cent below where they were a year ago.

Apart from fuel, the price of meals and audio-visual and computing equipment were also higher in February.

The price of rent rose by a little under one per cent in February, and was about 13 per cent above its level of February 2008, the survey said.

The cost of holiday travel and accommodation, books, newspapers, and magazines, and dairy and related products were lower in February.

Westpac Banking Corporation senior economist Anthony Thompson said much of the Australian dollar's fall in February had been passed on to consumers.

"This could be retailers taking the opportunity to claw back higher import prices from consumers," Mr Thompson said in a research note.