As one of the last few remaining AAA rated developed nations, Australia has a fairly high central bank interest rate compared to some of its peers. However, the cost of living in Australia has recently moderated, with the December 2012 Quarter CPI rising just 0.2%, compared with a 1.4% rise in the September Quarter.

Overall, the CPI rose just 2.2% for the year to December. The Australian Bureau of Statistics (ABS) said the most significant price rises were for domestic holiday travel and accommodation (+6.2%), automotive fuel (+2.6%) and rents (+0.8%). The price of vegetables (–5.7%), audio, visual and computing equipment (–4.3%) and pharmaceutical products (-3.5%) fell. The rise in December was less than half that forecast by economists, who now expect the lower figure will give the Reserve Bank some scope to consider another interest rate cut in February.

The Reserve bank will meet again in February 2013, with many pundits expecting either a 0.25% reduction in the interest rate, or possibly even a 0.5% rate if the central bankers are aggressive and looking to boost the retail sector of the economy. Many other economists are predicting a further 2 rate cuts throughout the year, with a potential reduction of about 1% across the whole of 2013.

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