fruit, veg and rents drive inflation

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    Not getting the capital growth you deserve? Well then... just keep putting up the rent! (good luck with that)

    Fruit, veg and rents drive inflation
    By online business reporter Michael Janda

    Fruit and vegetable prices rose 3 per cent in May (ABC News: Gary Rivett)

    A private gauge shows inflation has passed its trough, and is likely to accelerate later in the year, which is expected to lead to further interest rate rises.

    The TD Securities - Melbourne Institute monthly inflation gauge rose 0.2 per cent in May - a slower increase than its 0.3 per cent rise in April and 0.6 per cent jump in March.

    The biggest price rises were for fruit and vegetables (up 3 per cent), rents (up 1.5 per cent) and books, newspapers and magazines.

    Fuel prices also rose 0.5 per cent.

    Offsetting the price increases were falls for travel and accommodation, alcohol and tobacco, and appliances, utensils and tools.

    While the headline rate of inflation is now at 3.3 per cent, which is above the Reserve Bank's 2-3 per cent target, core inflation remained unchanged in May.

    The underlying figure, which excludes the most volatile prices movements and is most closely watched by the RBA, was 2.4 per cent over the year to May - in the middle of the bank's target band.

    Annette Beacher from TD Securities says the strong currency has been helping to keep a lid on inflation.

    However, she says price rises in areas not affected by the currency, known as non-tradeable inflation, are starting to gain traction.

    "If that continues to rise, no amount of strong currency is going to moderate that. So, other areas that are picking up are communication and housing as well, which is also a non-tradeable sector," she observed.

    "So what we're seeing here is the price rises outside the currency, and I think that's something that's got to be addressed by the RBA in due course."

    With core inflation remaining within the bank's target band and other recent data showing many areas of economic weakness, Ms Beacher says the Reserve Bank is likely to remain "comfortably on the sidelines" for several months.

    However, she says rates will rise later in the year as inflation begins to accelerate.

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