Higher inflation is on the way, said Australian consumers in an April survey by Westpac Bank and the Melbourne Institute.

The two institutions’ survey of inflationary expectations showed the median of consumers’ forecasts rose 0.9% to 4.1%. This is the highest reading since October 2008, and well above the March reading of 3.2%.

The Reserve Bank adjusts monetary policy in an attempt to keep inflation within a narrow band of 2–3%, in the long term. However, only 15.9% of the Westpac-Melbourne Institute survey respondents expect the RBA to be successful, decreasing from 18.5% the previous month. Those respondents expecting inflation to rise above that target band numbered 62.9%, up from 58.9% in March.

Rising inflation expectations bolster the case for the RBA’s five rate rises in the previous six meetings, taking the overnight cash rate to 4.25% at the most recent meeting in early April.

The most reading of consumer prices, from the fourth quarter of 2009, stands at 2.1%, according to the calculations released by the Bureau of Statistics. Underlying inflationary pressures rose 3.2% at that time.

“This month’s report indicates inflation pressure is mounting after a relatively stable period,” said Michael Chua, research fellow with MI. “The jump in the median inflation rate is significant and suggests that consumers expect demand to grow at a faster rate than changes in production.”

However, even if prices are expected to shoot skyward, Australians worry less about being unemployed, according to the same survey. The index of consumers’ unemployment expectations declined 0.8% in April to 102.92 points, a level 43.8% lower than the peak reached in February 2009.

Source: http://www.businessspectator.com.au