CPI puts pressure on rate decision

This result means CPI climbed by just 1.3 per cent over the 12 months to March 2015, far below the Reserve Bank’s 2 – 3 per cent target band range, according to Mortgage Choice. 

Mortgage Choice chief executive officer John Flavell said while the 1.3 per cent annual growth was largely in line with “market expectations”, it will no doubt provide the RBA with some food for thought heading into next month’s board meeting.

“Given that the annual rate of inflation is sitting at just 1.3 per cent – which is well below the Reserve Bank’s target band range and the slowest annual pace in nearly three years – the Reserve Bank may face pressure to stimulate the economy.

“I think the latest CPI result may fuel expectations of a rate cut in May,” Mr Flavell said.

At the April board meeting, RBA governor Glenn Stevens said further easing of policy may be appropriate over the period ahead, in order to foster sustainable growth in demand and inflation consistent with the target, Mr Flavell noted.

“So, with that said and given today’s inflation result, I wouldn’t be surprised if whispers of another rate cut intensify over the coming two weeks,” he explained.

Meanwhile, ABS data showed that financial services and housing prices have been growing faster than the inflation rate.

In the March quarter, prices in the insurance and financial services group rose at an annualised rate of 1.8 per cent, compared to 0.2 per cent in the December quarter.

The main contributor was financial services prices, which rose 2.3 per cent.

Prices in the housing group grew 2.7 per cent in the March quarter after growing 0.8 per cent in the December quarter.

That was driven by a 4.8 per cent price rise for new home purchases by owner-occupiers and a 2.1 per cent rise in rents – although this was partially offset by a 3.9 per cent fall in electricity prices.

The groups that recorded the highest inflation figures were education with 5.4 per cent, alcohol and tobacco with 5.2 per cent and health with 4.4 per cent.

Prices declined in another three groups – transport by 6.2 per cent, communication by 4.5 per cent, and clothing and footwear by 0.7 per cent.

[Related: Rate cut looms as consumer confidence falls]