Inflation expectations stay at new peak

Pricey petrol, food and rent has kept the inflationary expectations of consumers at a record high, a survey shows.

Meanwhile, the proportion of people expecting inflation to stay within the Reserve Bank of Australia's (RBA) target band has fallen to an eight-year low.

The median inflation expectation stayed at 5.9 per cent in July, the same level as last month when the reading reached its highest point since the Melbourne Institute (MI) survey began in June 1993.

MI research fellow Sam Tsiaplias said persistent price pressures for fuel, rent and food were maintaining high inflationary expectations.

"Although inflationary expectations did not rise in July, the effect of income tax cuts and the path of crude oil prices will be significant factors in determining whether inflationary expectations fall in the next few months," Dr Tsiaplias said.

Just 7.5 per cent of the survey's 1,200 respondents expected inflation to stay within the RBA's two to three per cent target band, down from eight per cent in June.

This was the lowest proportion since June 2000, the month before the former Howard government's goods and services tax (GST) was introduced.

The latest survey was taken in the same month crude oil prices reached a record $US145.85 a barrel and big city petrol prices climbed above $1.70 a litre.

The Rudd government's $7 billion in budget tax cuts for this financial year came into effect on July 1.

This latest inflation survey comes a day after the Westpac-Melbourne Institute consumer sentiment index for July fell to its lowest level since January 1992.

Queensland had the highest median inflationary expectation of 7.7 per cent.

By occupation, clerks and sales assistants had the highest median inflationary expectation of 7.5 per cent.