Today's Consumer Price Index (CPI) shows that inflation in Australia remains moderate. The All Groups CPI increased by 0.5 per cent in the December quarter, following an increase of 0.9 per cent in the September quarter. Through the year to the December quarter, the CPI rose by 2.8 per cent. While the increase in the CPI in the September quarter largely reflected the impact of higher automotive fuel prices, in the current quarter food prices accounted for a significant proportion of the increase in the CPI.
Automotive fuel prices fell by 0.9 per cent in the December quarter, driven by lower world crude oil prices. Through the year to the December quarter, the CPI excluding automotive fuel rose by 2.2 per cent, well within the medium-term inflation target band.
Price falls were recorded across a range of other items in the December quarter. Health costs were down by 1.1 per cent, driven by a 4.6 per cent fall in pharmaceutical prices (due to the cyclical impact of the Pharmaceuticals Benefits Scheme Safety Net) and a 0.2 per cent fall in hospital and medical services prices (reflecting the effects of increased bulk-billing ratios for some medical services and the Medicare Plus Safety Net).
Price falls were also recorded for audio, visual and computing equipment (down by 3.2 per cent), motor vehicles (down by 1.1 per cent), household appliances, utensils and tools (down by 1.2 per cent), communication (down by 0.7 per cent), and clothing and footwear (down by 0.2 per cent).
Continuing high levels of construction activity in some capital cities saw house purchase prices rise by 0.8 per cent, driven by increases in labour and material costs. However, the rate of increase in house purchase prices was the lowest in three years, reflecting moderate price growth in some capital cities.
Despite the moderate fall in fuel prices in the quarter, the level of fuel prices remains high and this flowed through to distribution costs which, in part, explained the increase in food prices (up by 1.8 per cent). Prices for deposit and loan facilities rose by 2.3 per cent, due to increases in banking charges, such as account keeping and transaction fees. Other items that recorded price increases included domestic holiday travel and accommodation (up by 3.3 per cent, consistent with the usual seasonal pattern), alcohol and tobacco (up by 0.5 per cent), and household contents and services (up by 0.7 per cent).
The outlook is for inflation to remain in the RBA's medium-term inflation target band, as reflected in the recent Mid-Year Economic and Fiscal Outlook 2005-06 . Prices in the housing construction sector have eased and upstream price pressures remain moderate. Australia's continued moderate inflation outcomes are evidence of the success of the Government's macroeconomic policies.