Australia inflation gauge jumps 0.7 pct in Dec-TDMI

SYDNEY, Jan 20 (Reuters) - A private gauge of Australian inflation jumped by the most in almost three years in December driven largely by higher prices for food, petrol and tobacco, perhaps suggesting some upside risk for official data on inflation due later this week.

The TD Securities-Melbourne Institute's monthly measure of consumer prices rose 0.7 percent in December, from November when it increased by 0.2 percent.

The annual pace accelerated to 2.7 percent, from 2.4 percent, and into the upper half of the Reserve Bank of Australia's (RBA) long term target of 2 to 3 percent.

The government measure of consumer prices (CPI) is due on Wednesday and any surprise on the high side would likely dampen speculation about another cut in interest rates from the RBA.

However, much of the jump in the TDMI gauge in December was due to one-off influences, including an unseasonably large 5.8 percent spike in prices for fruit and vegetables and higher taxes on tobacco. Petrol also climbed 5 percent in December, after falling the two previous months.

Excluding fruit, vegetables and petrol, the inflation gauge rose a more modest 0.4 percent in December to be up just 1.8 percent for the year.

TD's head of Asia-Pacific Research, Annette Beacher, said the large increase in the headline measure needed to be treated with caution and expected the official figures to remain benign.

She forecast the government's measure of CPI would rise 0.5 percent over the fourth quarter of last year, to be up 2.5 percent on the same period of 2012.

Key measures of underlying inflation, which the RBA focuses on for policy, were seen rising 0.5 percent for the quarter and just 2.2 percent on the year.

"On our projections we expect this to be the low point for the inflation cycle, although gains from here are likely to be measured, reaching the mid-target level of 2.5 percent by mid-2014," said Beacher.

The December TDMI report also showed interesting divergence in prices for tradable goods, where there is a lot of competition from imports, and those for non-tradables which are mainly for services such as education and health.

The strength of the Australian dollar from 2010 to 2012 kept downward pressure on tradable prices and helped offset stubborn inflation in the services sector domestically.

But with the dollar falling last year the price of imports has rebounded and so has tradable inflation. In December alone prices for tradable items surged 1.5 percent, again driven by petrol, pushing annual inflation up to 2.4 percent.

Fortunately, inflation in the services sector finally seems to be moderating with non-tradable prices up just 0.1 percent in December for the fourth month in a row.

Still, service-sector prices will have to slow even more if the upward pressure from import prices is not going to lift inflation overall.

(Reporting by Wayne Cole; Editing by Shri Navaratnam)

((Wayne.Cole@thomsonreuters.com)(612 9373 1813)(Reuters Messaging: wayne.cole.thomsonreuters.com@reuters.net))

Keywords: AUSTRALIA ECONOMY/INFLATION