Today's Consumer Price Index (CPI) result shows that inflation remains low, reflecting an economy that is still operating below capacity.
Inflation was 2.1 per cent through the year to the December quarter 2009, at the lower end of the Reserve Bank's 2 to 3 per cent target band, up from 1.3 per cent in the September quarter. This increase was largely a result of the sharp falls in global fuel prices evident in the December quarter 2008, dropping out of today's annual CPI.
Quarterly growth in the CPI was 0.5 per cent in December, down from 1.0 per cent in September.
Underlying inflation was 3.4 per cent through the year to the December quarter, slightly down from 3.5 per cent through the year to the September quarter. Underlying inflation was 0.6 per cent in the December quarter, down from 0.8 per cent in the September quarter.
The main contributors to this quarter's headline inflation outcome were price increases for food, housing components (such as rents and house purchase) and recreation, partially offset by a price fall in transportation.
Food prices contributed 0.2 of a percentage point to inflation, as fruit and vegetable prices rose strongly, following price declines in the June and September quarters of 2009. Housing prices contributed 0.2 of a percentage point, with house purchase prices impacted by the winding down of the First Home Owners Boost. Recreation prices contributed 0.2 of a percentage point to quarterly inflation.
Transportation prices detracted 0.1 of a percentage point from inflation, largely as a result of falls in automotive fuel prices. The audio, visual and computing subgroup also detracted from quarterly inflation.
Inflation remains well below the levels seen in 2008, with the global recession resulting in a substantial reduction in demand pressures in the Australian economy over the past year. Inflation is expected to remain moderate over the near‑term as the fallout from the global recession continues to impact the domestic economy.
The Government remains firmly focused on lifting the productive capacity of our economy through investments in skills, education, infrastructure and economic reform, so we can enjoy strong growth with low inflation into the future.