Today’s CPI result shows that inflationary pressures continue to moderate in response to the global recession and its effects on the domestic economy.
The CPI rose by 0.1 per cent in the March quarter to be 2.5 per cent higher through the year, slowing from 3.7 per cent in the December quarter. This is the first time since late 2007 that headline inflation is within the RBA’s target band of 2 to 3 per cent.
Underlying inflation was 1.1 per cent in the quarter but slowed to 4.2 per cent through the year.
The moderate outcome for headline inflation was underpinned by a number of price falls. A 14.1 per cent reduction in prices of deposit and loan facilities reflects in large part the fact that mortgage interest rates fell more than deposit rates.
Automotive fuel prices fell by 8.1 per cent in the quarter, driven by falling international oil prices, to be 16.7 per cent lower through the year.
Prices for education, health care, food and rents increased strongly in the March quarter. Education prices rose by 5.4 per cent, due to a seasonal increase in fees from the start of the new school year.
Similarly, seasonal factors associated with the Pharmaceuticals Benefits Scheme were responsible for health price increases of 4.4 per cent. The rise in food prices was widespread across food categories, with a large contribution from vegetables.
Over the past year, inflation has moderated significantly as the deepening global recession has lowered previous demand pressures. Looking forward, a further easing in inflationary pressures is expected as the effects of the global recession continue to impact on the domestic economy.