Inflation guage suggests RBA on hold for a while yet

The TD Securities-Melbourne Institute monthly inflation gauge, rose 0.2% in June bringing the annual rate to 2.6% in the year to June, well within the RBA's inflation target band of 2 - 3%.

However, core prices, excluding volatile fuel, fruit and vegetables, climbed 0.4% in June, lifting the annual rate to 3.3% from 2.7 percent in May.

Prices of tradeable goods, helped by a strong $AUD, rose just 0.3% in the year to June suggesting that inflationary pressures are almost exclusively domestic. Domestic inflation is the real risk to further interest rate rises if it remains elevated. The domestic rate is running at a solid 4.1 percent in the year to June.

The RBA will remain on hold this month but will be watching the official consumer price report for the second quarter, due on July 25, for any evidence of a rebound in headline and underlying inflation.