An economist says the Reserve Bank appears willing to run the risk of rising inflation, as a private measure of consumer prices reaches its highest level for nearly three years.

The TD Securities – Melbourne Institute Inflation Gauge shows consumer prices were flat this month after rising by a 0.3 per cent in May.

However, the annual inflation rate rose to 3 per cent, which is its highest level since August 2011 and at the top of the RBA’s 2-3 per cent target range.

Prices rose for rent, petrol and tobacco, but they fell for fruit and vegetables and health care.

TD Securities head of Asia-Pacific research Annette Beacher says the Reserve Bank appears willing to run the risk of higher inflation before raising interest rates.

“With this June report we have finalised our June quarter CPI (Consumer Price Index) forecasts. We expect headline inflation to increase by 0.7 per cent in the quarter, to be 3.2 per cent higher than a year ago, while we forecast underlying inflation to also increase by 0.7 per cent in the quarter, for an annual rate of 2.75 per cent,” she noted in the report.

Ms Beacher expects the RBA to leave the cash rate on hold when it meets tomorrow, but she is predicting a rate rise by early next year.

“Even if the second quarter CPI exceeds the top end of the RBA’s band, it appears that it, like the Fed, is willing to run the risk of higher inflation before it acts, hence why we pushed our call for the first RBA hike to the first quarter of 2015,” she added.

“For now expect the RBA to echo a period of stability in interest rates.”