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April 24th, 2013 
Peter Nolan
Updated
Official inflation figures show consumer prices remain well under control, giving the Reserve Bank scope to cut interest rates further.
The Bureau of Statistics figure for headline inflation in the March quarter came in at 0.4 per cent, leaving the annual rate of consumer price increases at 2.5 per cent, slightly up from the 2.2 per cent level in the previous December quarter.
The most significant price rises for the overall index were a a steep 1.7 per cent rise in the cost of buying homes, a 7.6 per cent rise in the average price of pharmaceutical products, a 6.5 per cent increase in tertiary education costs and 3.7 per cent rise in the price of tobacco.
Key price moves
Education +5.7%:
Tertiary +6.5%, secondary +5.4%, primary +4.6%
Health +3%:
Pharmaceuticals +7.6%, medical/hospital +2%
Alcohol and tobacco +1.6%:
Tobacco +3.7%
Housing +1.2%:
Home prices +1.7%, electricity +2.4%, rents +0.8%
Insurance & financial services +0.7%:
Insurance +1.9%
Transport +0.5%:
Fuel 1.2%
Communication 0%:
Telecommunications +1.4%, postal services +2.8%
Food and non-alcoholic drinks -0.8%:
Fruit -7%, vegetables -4%, takeaway food +0.7%
Recreation and culture -0.8%:
Technology -4.7%, Travel: o/seas -5.2%, domestic +1.2%
Household goods & services -1.3%:
Furniture -6.8%, textiles -6.7%, childcare +3.3%
Clothing and footwear -3.9%:
Menswear -5.4%, women’s footwear -6.7%
On the other hand, prices for overseas travel and accommodation fell 5.2 per cent, furniture prices were down 6.8 per cent and fruit cost 7 per cent less than it did the previous quarter.
The Reserve Bank’s preferred underlying inflation figures, which take out the most volatile movements, averaged 2.4 per cent for the year to March, well within its 2-3 per cent target band.
CommSec economist Savanth Sebastian says the figures give the RBA scope to lower interest rates further, although he does not think it will move next move.
“It is clear that at present inflation is not an issue, meaning that rates can stay lower for longer,” he wrote in a note on the data.
“While the Reserve Bank will debate another rate cut at the May board meeting, the recent improvement in the global economic outlook, rising share markets, healthy house prices and improving confidence levels is likely to provide policymakers with enough confidence to stay on the interest rate sidelines.”
Financial markets are now pricing in a 40 per cent chance that the Reserve Bank will cut official interest rates in May, up from 25 per cent before the data.
Market pricing shows traders are now, on average, expecting two more rate cuts to take the official cash rate target to a trough of 2.5 per cent by January next year.
The increased expectations of further rate cuts pushed the Australian dollar down from around 102.7 US cents before the data was released to 102.4 US cents by 12:45pm (AEST).
Topics:
business-economics-and-finance,
economic-trends,
money-and-monetary-policy,
australia
First posted
Source Article from http://www.abc.net.au/news/2013-04-24/inflation-figures-march-quarter/4648602
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