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Inflation up, but still below RBA target

SOURCE: Perth Now

Australia’s inflation remains below the Reserve Bank’s target, despite a spike in education and healthcare contributing to the 0.4 per cent rise in the consumer price index in the March quarter.

The CPI undershot economists’ forecasts for a 0.5 per cent lift, and was slower than the December quarter figure of 0.6 per cent, figures from the Australian Bureau of Statistics on Tuesday showed.

The annual headline rate was 1.9 per cent, below the central bank’s two to three per cent target, while underlying inflation – which strips out volatile price movements – was up 0.5 per cent in the quarter, and the annual rate was up 1.95 per cent.

CommSec chief economist Craig James said the Reserve Bank will likely keep interest rates at a record low 1.5 per cent for some time, with inflation still struggling to get into the central bank’s target band.

“The Reserve Bank governor says he would like to see inflation at a 2.5 per cent annual rate with wage growth at 3.5 per cent, but we are still some way off these growth rates,” Mr James said.

J.P Morgan economist Ben Jarman said despite the large increases in education, health and transport, there is little in the March report to show any pick-up in pace of inflation.

“We have expected the accumulated rise in unit labour costs after last year’s surge in employment to offer a little support for core inflation in the near term, particularly in services,” Mr Jarman said.

“But this is unlikely to persist as employment growth moderates.”

Education prices rose 2.6 per cent for the quarter, thanks to a boost across preschool, primary and secondary education following the start of the new school year.

Mr Jarman said price increases in the education and healthcare sectors were, however, more modest than normal with low wages growth forcing households to cut back on costs.

Pharmaceutical products and medical and hospital services supported a 2.2 per cent rise in healthcare, while fuel and motor vehicles triggered a 1.1 per cent lift in transport.

The largest fall in prices was in the clothing and footwear sector due to ongoing competition and discounting activity in the retail industry.

Recreation and culture, furnishings and communication all recorded a decline in prices.

The Australian dollar rose after the release of the data and continued to edge higher during the afternoon.

The local currency was at 75.81 US cents just before the figures were released at 1130 AEST, and were trading stronger at 76.11 by 1347 AEST.


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