/www.bloomberg.com/ By Victoria Batchelor
Sydney, Oct. 23 (Bloomberg) -- Australia's rate of inflation was unchanged in the third quarter, giving the central bank room to leave interest rates unchanged for the rest of the year.
Consumer prices rose 0.7 percent in the three months ended Sept. 30, the same as the previous quarter and matching the median forecast of 21 economists surveyed by Bloomberg News.
Bonds rose on expectations inflation will slow in coming months and the central bank will keep interest rates unchanged. Reserve Bank Governor Ian Macfarlane, who raised rates a half-point earlier in the year, has held borrowing costs steady since July on concern a slowing global economy will curb growth at home.
``There's very little here to argue for a rate move, particularly with the fragile global economy and the likelihood of the housing market slowing next year,'' said Scott Haslem, senior economist at UBS Warburg Australia Ltd. ``Inflation will ease.''
Bonds pared an earlier decline after the report was released. The 6.5 percent bond maturing in May 2013 rose 0.179, or A$1.79 cents per A$1,000 face amount, to 104.483 at 12:15 p.m. Sydney time. The yield fell 2 basis points from yesterday to 5.92 percent, after trading as high 6.01 percent before the figures were released.
The implied yield on the 90-day bank bill futures was at 4.93 percent, indicating investors expect a quarter percentage point rate increase by the end of the year. The central bank's policy-setting board next meets Nov. 4.
Rates on Hold
Fourteen of 22 economists surveyed by Bloomberg News today said the central bank will leave interest rates unchanged for the rest of the year. One expects a rate cut and seven forecast a quarter percentage point rate increase in December.
``There is no sign these price increases have propagated any second-round effects, including higher wage demands,'' Ric Simes, chief economist at ICAP Australia Ltd., said before the report was released. ``The central bank has accordingly been downplaying any immediate concerns with inflation and its attention is elsewhere.''
Consumer prices rose 3.2 percent from a year ago, breaking the top of the central bank's 2 percent to 3 percent target range for the first time in a year.
Market prices, excluding volatile items, which are a measure of core inflation, rose 0.5 percent in the third quarter. They were 3 percent higher than a year earlier.
Fueling consumer prices in the quarter, food prices gained 1 percent.
Drought
More than 90 percent of the state of New South Wales, 30 percent of Queensland and a quarter of Victoria state are gripped by drought, pushing up the price of wheat, canola, vegetables and barley. Goodman Fielder Ltd., the nation's biggest food maker, raised bread prices 5 percent last month and said it may have to increase prices again.
Wheat futures on the Chicago Board of Trade have surged 40 percent this year after drought damaged crops in North America and Australia, cutting supplies from the world's biggest exporters of the grain.
Canola prices also surged after drought cut supplies from Canada and Australia, the two biggest exporters of the oilseed. Canola futures on the Winnipeg Commodities Exchange are up one-third this year.