IMPORT PRICES EDGE DOWN DESPITE $A FALL

Import prices edge down despite $A fall

Export and import prices fell by exactly the same margin in the June quarter.

The small fall in import prices should help to lock in expectations that the Reserve Bank of Australia (RBA) will cut the cash rate after its board's monthly monetary policy meeting on Tuesday.

Export and import prices both edged down by 0.3 per cent in the quarter.

Compared with the June quarter of 2012, import prices were down by 2.4 per cent, but export prices fell by 6.4 per cent over the same four-quarter span, figures from the Australian Bureau of Statistics on Thursday show.

The annual changes are in line with the decline in Australia's terms of trade – the ratio of export prices to import prices – which is slowing growth in the value of Australia's national income.

The resulting gloomy outlook for growth underpins expectations for lower interest rates to boost the economy.

But the RBA has a watchful eye on the falling exchange rate, which could boost inflation. A lower Australian dollar pushes import prices up and that makes a rate cut riskier due to fears it could further stoke inflationary pressures.

And there have been the quarterly rises in some categories of imports. Food prices rose by 3.9 per cent, machinery and transport equipment by 2.6 per cent, materials-based manufactures by 0.8 per cent, chemicals by 1.5 per cent and miscellaneous manufactured goods by 2.6 per cent.

The lower exchange rate, which peaked in April, can most likely be blamed for a sizeable part of those increases.

But there were falls, notably fuels. That was down by 4.9 per cent in the quarter as the price of crude oil eased back enough to lower import prices overall in the quarter.

In the minutes of its July board meeting, the RBA said the Aussie dollar's depreciation was "expected to add a little to inflation over time" but that it was sticking to its forecast that inflation would stay in line with the central bank's 2-3 per cent target range.

The new trade price figures should give the RBA some additional reassurance that its forecasts are on track and bolster expectations that, having left the door open for another rate cut, it will walk through it on Tuesday.

Not that expectations need bolstering. The futures market currently gives a cut in the cash rate next Tuesday to 2.50 per cent from 2.75 per cent a 96 per cent chance.