Today’s Consumer Price Index (CPI) shows that inflation remains subdued in a strongly growing economy, with the All Groups CPI increasing by 0.5 per cent in the December quarter 2003.
Over the past year, the CPI has risen by 2.4 per cent, well within the medium-term inflation target band of 2 to 3 per cent on average over the cycle. This is a strong result in an environment of solid economic growth.
Australian households benefited from price falls across a range of items in the December quarter, including motor vehicles (down 0.8 per cent), fuel (down 0.9 per cent), audio, visual and computing equipment (down 5.5 per cent) and pharmaceuticals (down 3.9 per cent). Over the past eight years, motor vehicle prices have fallen by 14.8 per cent, reflecting reductions in tariff rates, the replacement of the 22 per cent wholesale sales tax with the goods and services tax, and productivity gains by Australia’s domestic car producers. Healthy competition and the appreciation of the Australian dollar contributed to declines in clothing and footwear (down 0.2 per cent) and household furnishings, supplies and services (down 0.1 per cent).
High levels of activity in the construction sector saw house purchase prices rise 1.0 per cent in the December quarter, adding 0.1 of a percentage point to the overall increase in the CPI. Price increases were also recorded for food (up 1.8 per cent, reflecting the ongoing impact of the drought and some localised adverse weather conditions) and domestic holiday and travel (up 6.6 per cent, consistent with the usual seasonal pattern).
The Government’s forecasts in the recent Mid-Year Economic and Fiscal Outlook 2003-04 were for inflation to remain around the lower end of the medium-term inflation target band in the coming year. Competitive product and labour markets have helped to ensure that growth in wages and other business input costs remains moderate. The recent appreciation of the Australian dollar will also act to restrain price pressures in the economy.
With these solid fundamentals in place, today's CPI release confirms that Australia’s solid economic growth and low unemployment continues to be underpinned by moderate price inflation. Continued sensible wage demands and ongoing productivity growth are critical to maintaining this performance.