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Australia Inflation Rises Less Than Expected In Q1


Australia's inflation increased less than forecast in the first quarter of 2013, giving more room for the central bank to ease monetary policy.

The consumer price index rose 0.4 percent quarter-on-quarter in the first three months of the year, weaker than the 0.7 percent increase expected by economists. This followed a 0.2 percent increase in the fourth quarter of 2012.

Year-on-year, the CPI increased 2.5 percent, faster than the 2.2 percent gain in the previous quarter. Economists had forecast a 2.8 percent rise. The RBA has an inflation target of 2-3 percent in the medium-term.

Downward pressure on prices came mainly from a 7 percent quarterly decline in fruit prices, a 5.2 percent decrease in international holiday travel and accommodation costs and a 6.8 percent slump in prices of furniture, according to the statistical office. The decline in fruit prices along with vegetable prices led to a 0.8 percent drop in the costs of the broader group of food and non-alcoholic beverages.

At the same time, the most significant price rises last quarter were for new dwelling purchase by owner-occupiers and pharmaceutical products, the Bureau said.

The Reserve Bank of Australia's trimmed mean gauge rose 0.3 percent on a quarterly basis in the March quarter compared to a rise of 0.6 percent in the December quarter of 2012. This was forecast to increase 0.5 percent. Over the twelve months to the March quarter, the trimmed mean rose 2.2 percent, less than the expected 2.4 percent increase.

The weighted median rose 0.5 percent, as expected, during the period compared to the revised 0.6 percent rise in the previous quarter. Over the twelve months to the March quarter, the weighted median was up 2.6 percent, higher than the 2.4 percent forecast.

The statistical office reported a 0.1 percent quarter-on-quarter increase in the seasonally adjusted CPI.

In April, the central bank retained the key policy rate at 3 percent, but maintained that there is scope for further monetary easing, given benign inflationary pressures in the economy.

"We think the 'demand' leg is important though, and do not think the Board will feel comfortable easing again without evidence of further weakness on the activity side, particularly given officials' conviction that policy is getting traction in the expected pockets," said Ben Jarman, an economist at J.P.Morgan Australia.

The Reserve Bank of Australia expects moderate economic growth in the coming months. Also, the bank was of the view that as the peak of the mining boom approaches, there will be a need to boost demand in the other sectors of the economy.

by RTTNews Staff Writer

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