Latest CPI Figures Show Lower Inflation

Inflation increased by a negligible 0.1 per cent in the first quarter of 2012.

In the year to March, there was a 1.6 percent increase in prices. The underlying inflation rate was 2.1 per cent.

The low Consumer Price Index figure has surprised some commentators. The Reserve Bank is now being widely tipped to lower interest rates next week.

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Statement from the Treasurer, Wayne Swan.

Consumer Price Index – March Quarter 2012

Today’s inflation data show a moderation in both headline and underlying inflation through the year to March, with underlying inflation remaining well contained at the lower end of the Reserve Bank’s target band after falling to its lowest level in well over a decade.

Today’s figures are another reminder of Australia’s strong economic fundamentals – solid growth, low unemployment, strong public finances, a huge pipeline of investment, plus contained inflation – which put the Australian economy in a league of its own.

The Consumer Price Index (CPI) rose 0.1 per cent in the March quarter 2012, up from 0.0 per cent in the December quarter 2011. Headline inflation was 1.6 per cent through the year, down from 3.1 per cent in the December quarter 2011.

Underlying inflation was 0.3 per cent in the quarter, down from 0.6 per cent in the December quarter, reaching its lowest level since December 1997. Underlying inflation was 2.1 per cent through the year to March, down from 2.6 per cent through the year to December, reaching its lowest level since September 1999.

The significant moderation in headline inflation through the year is largely a result of the temporary price impacts from last year’s natural disasters washing out of the annual figures, in addition to further significant declines in fruit prices during the quarter. Fruit prices fell by 30 per cent in the March quarter, detracting 0.4 percentage points off the quarterly CPI outcome. This reflects the ongoing recovery in production following last year’s natural disasters, but also more favourable growing conditions, with banana prices alone falling by 60 per cent in the quarter. There was also a seasonal decline in recreation and culture prices (down 2.0 per cent), along with downward pressure on prices for some consumer durables partly due to the strength of the Australian dollar.

While the moderation in headline and underlying inflation is welcome, and demonstrates Australia’s strong economic fundamentals, many households continue to face cost of living pressures.

A number of seasonal price rises contributed to headline inflation in the quarter. Health prices rose 4.4 per cent in the quarter, contributing 0.2 of a percentage point to headline CPI growth, mainly due to increases in the price of pharmaceuticals. Education prices rose 6.0 per cent, contributing 0.2 of a percentage point to headline CPI growth, reflecting seasonal strength associated with the resumption of the academic year.