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Australia Q1 Inflation Subdued; Core Inflation Eases

Australia Q1 Inflation Subdued; Core Inflation Eases

Australia's consumer prices rose only modestly during the March quarter, while core inflation cooled unexpectedly, strengthening the case for an interest rate reduction by the central bank in its next meeting in May.

The headline consumer price index rose 0.1 percent quarter-on-quarter in the March quarter, slower than the 0.6 percent gain expected. In the December quarter, the CPI remained unchanged.

Compared to last year, the CPI rose 1.6 percent after a 3.1 percent rise through the year to the December quarter 2011. The central bank aims to keep inflation between the 2-3 percent target band.

The Reserve Bank of Australia's trimmed mean inflation gauge rose 0.3 percent quarter-on-quarter, slower than a revised 0.7 percent rise in the December quarter. The December figure was revised from 0.6 percent rise reported initially and economists had forecast a similar increase in the March quarter.

Over the twelve months to the March quarter 2012, the trimmed mean rose 2.2 percent compared to a rise of 2.6 percent over the twelve months to the December quarter 2011. Expectations were for a 2.4 percent increase.

Prices of food and non-alcoholic beverages fell 2.1 percent on quarter, led by a 30 percent slump in prices of fruits and 3.2 percent decrease in prices of poultry. Costs of international holiday travel and accommodation fell 4.8 percent.

Banana prices declined 60 percent in the March quarter due to good supplies following the shortages created by Cyclone Yasi in February 2011.

Meanwhile, the most significant price rises this quarter were for pharmaceutical products, automotive fuel, housing and medical and hospital services.

In the March quarter, seasonally adjusted CPI fell 0.2 percent from previous quarter. The weighted median rose 0.4 percent during the period compared to a revised 0.6 percent rise in the December quarter. This was forecast to rise 0.6 percent.

Over the twelve months to the March quarter, the weighted median rose 2.1 percent compared to a revised rise of 2.5 percent over the twelve months to the December quarter. Economists had forecast an increase of 2.3 percent.

After keeping the cash rate unchanged at 4.25 percent in the April meeting, RBA Governor Glenn Stevens hinted that moderate inflation could prompt the bank to lower the interest rate, which is currently the highest among developed nations.

The central bank reduced rates by 25 basis points each at its meetings in November and December.

According to official data, the Australian economy expanded only 0.4 percent sequentially in the December quarter. The central bank has acknowledged that the economic growth outside the resources sector remained weak.

The latest Westpac-Melbourne Institute leading index released last week pointed to below-trend growth for the economy in the coming months.

by RTT Staff Writer

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