Inflation figures released by the ABS on April 23 favour the RBA maintaining interest rates at their current levels when the board meets tomorrow afternoon in Sydney.
The Australian Bureau of Statistics reported that the Consumer Price Index (CPI) rose 0.6% in the March quarter 2014, following a rise of 0.8% in the December quarter 2013.
The most significant price rises this quarter were for tobacco (+6.7%), automotive fuel (+4.1%), secondary education (+6.0%), tertiary education (+4.3%), medical and hospital services (+1.9%) and pharmaceutical products (+6.1%). These rises were partially offset by falls in furniture (-4.3%), maintenance and repair of motor vehicles (-3.3%), international holiday travel and accommodation (-2.4%) and domestic holiday travel and accommodation (-2.4%).
The tobacco price increase was caused by the federal excise tax rise from 1 December 2013 as well as the March 2014 biannual indexation based on the ABS’ Average Weekly Ordinary Times Earnings (AWOTE) rate.
Education prices have risen with the commencement of the new school year.
Rises for medical and hospital services and pharmaceutical products were a result of the cyclical reduction in the proportion of patients who qualify for subsidies under the Medicare Benefits Scheme and Pharmaceutical Benefits Scheme at the start of each calendar year.
The CPI rose 2.9% through the year to the March quarter 2014, following a rise of 2.7% through the year to the December quarter 2013.
Interest rates to remain on hold
There have been concerns that inflation would broach the RBA’s threshold 3 per cent mark during March, giving the RBA no choice but to increase interest rates, but theses figures will have eased concerns somewhat.
Some economists now predict the official cash rate will remain low for some months to come, these results are great news for the residential construction industry and will help the recovery continue.
This latest inflation data will confirm the RBA’s April position that it is prudent to maintain interest rates at record low levels.