Today’s All Groups Consumer Price Index (CPI) rose by 1.2 per cent in the June quarter 2007, to be 2.1 per cent higher than a year ago. Major contributors to inflation in the quarter included automotive fuel and food. A sharp increase in world oil prices led to a 9.1 per cent increase in fuel prices in the June quarter, contributing around 0.4 of a percentage point to the overall increase in the CPI.
Excluding volatile items (fuel, fruit and vegetables) the CPI rose by 0.7 per cent to be 2.6 per cent higher through the year. The Reserve Bank of Australia’s Trimmed mean and Weighted median measures both rose by 0.9 per cent in the quarter, to remain unchanged through the year at 2.7 and 2.8 per cent.
The food component of the CPI increased by 1.7 per cent in the June quarter and contributed around 0.3 of a percentage point to quarterly inflation. This was largely driven by strong increases in fruit and vegetable prices, in part reflecting a significant increase in banana prices due to supply disruptions. Higher vegetable prices reflected the impact of the drought compounded by unusual wet and cold weather during the harvest, leading to shortages in supply.
Housing costs rose by 0.8 per cent in the June quarter. This reflected increases in both rents (up 1.6 per cent) and house purchase prices (up 1.0 per cent). Rental prices increased across all capital cities, associated with low rental vacancy rates.
Australian households benefited from price falls across a range of items in the June quarter, including domestic holiday travel and accommodation (down 3.5 per cent); audio, visual and computing equipment (down 1.6 per cent); breakfast cereals (down 1.6 per cent) and utilities (down 0.5 per cent).
Moderate underlying inflationary pressures should see the CPI remain contained in the period ahead. Labour costs are continuing to grow at a modest pace and the strong Australian dollar is expected to put some downward pressure on inflation. However, high world oil prices and the effects of adverse climatic conditions on food production continue to create some uncertainty around the inflation outlook.
The Government’s sound economic management has ensured that the Australian economy has the flexibility to adjust to substantial price fluctuations. Australian households are benefiting from the higher standard of living that comes with solid economic growth, sustainable wage growth, near record labour force participation and the lowest unemployment rates in 32 years.