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    HIA: Inflation eases in September; interest rates unlikely to change from record lows

    Housing Industry Association

    The Housing Industry Association (HIA), the voice of Australia’s residential building industry reports that the annual rate of inflation eased slightly during the September 2014 quarter. This reaffirms the widely held view that interest rates will remain at record lows for some more time.

    The headline rate of annual inflation eased back to 2.3 per cent in the September 2014 quarter, a significant drop from the 3.0 per cent rate during the previous June quarter. The key measures of underlying inflation stood at 2.5 per cent and 2.6 per cent, respectively during the quarter, thereby remaining comfortably within the RBA’s inflation target range.

    According to HIA Senior Economist Shane Garrett, the rather large reduction in the pace of inflation has been assisted by the one-off influence of the carbon tax repeal. He explains that the housing component of the Index provides a good example of the impact of carbon tax on households with electricity price dropping 4.4 per cent in the September 2014 quarter, and by 5.1 per cent over the year.

    Shane Garrett also noted that the sub-component of consumer price index tracking movements in the price of new homes purchased by owner occupiers (excluding land), increased by 1.1 per cent in the September quarter and by 3.8 per cent over the year. This modest growth provides a stark contrast to the aggregate price growth, which is predominantly driven by established homes and the land on which they sit.

    He observed that policy makers must address the high cost of delivering residential land to market to tackle the housing affordability challenge.

    He also added that inflationary pressures that would sway the RBA into tightening interest rates are not likely to emerge as long as economic growth remains below par, labour markets remain soft, governments maintain a firm grasp onto the purse strings and businesses lack an appetite to invest.

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