WITH inflation running at 5 per cent, savers will struggle to preserve the value of their finances due to sliding bank deposit rates.
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The federal Treasurer, Wayne Swan, echoing the thoughts of the Reserve Bank, said yesterday's inflation reading was likely to mark the worst of the spike in consumer prices.
Inflation is expected to fall in the coming months as financial woes quell world growth, pushing down commodity prices and forcing manufacturers and retailers to offer discounts to attract sales.
Until then, inflation remains uncomfortably high.
In the three months to September inflation rose 1.2 per cent and climbed 5 per cent in the year, the Bureau of Statistics' report shows.
Underlying inflation - which strips out volatile price movements - rose 1.25 per cent for the quarter, the biggest rise since late 1990. It rose 4.7 per cent for the year; the Reserve's target is 2-3 per cent.
"The large rise shows that the Reserve Bank was justified in raising rates earlier this year and probably would have been considering further hikes had the worsening credit crunch not caused a downward spiral in markets and paralysed the global banking system," said an ABN Amro economist, Kieran Davies.
The Reserve Bank governor, Glenn Stevens, said on Tuesday that there would be little evidence of falling inflation for a good six months.
In the meantime households will face difficult questions about where to put their savings. Bank deposit rates are falling, with sharemarkets, as financial institutions expect more official rate cuts.
Housing, food, alcohol and financial services were the main causes of higher prices in the three months to September.
