Inflation is expected to have nudged five per cent in figures out early on Wednesday morning (Australian Central Standard Time), but markets still expect another interest rate cut next month because of the global financial crisis.
The Reserve Bank of Australia (RBA) has said it expects the consumer price index for the September quarter to be near five per cent, way beyond its two to three per cent target.
RBA governor Glenn Stevens yesterday said the CPI was likely to remain high for a good six months.
“But looking forward to next year, forces seem now to be building that will start to dampen pressures on prices,” he said.
The central bank earlier this month cut its official cash rate by one percentage point.
RBA minutes at that meeting say the sharply worsening conditions in international markets and the deterioration in the global economic outlook posed downside risks to the domestic economy.
Stevens said the cut brought forward reductions that might ordinarily have taken place over several months.
But financial markets are predicting the RBA will cut again by a further half a percentage point when the board next meets on November 4.
The Australian share market yesterday rose by almost four per cent as world markets rebounded on signs the credit crunch may be easing and the US may do more to stimulate its flagging economy.
Mr Stevens said the risk of “global catastrophe” has been reduced because of action taken by international policy makers in recent weeks.
While the plans taken by major countries in the face of the global financial crisis were not precisely uniform, they did address the issues of liquidity, capital and confidence, he said.
