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Flat Inflation Read To Keep RBA At Bay

No rate rise for at least a year from the Reserve Bank after another weak inflation performance in the first three months of 2018.

The inflation reading came yesterday a week before the central bank’s May board meeting and rate decision, and then the release of the second Statement On Monetary Policy Friday week.

March quarter inflation rose 0.4% from the three months to December, lower than the forecast 0.5%, according to the report from the ABS. The RBA’s two core measures rose 0.5% quarter on quarter.

That left the annual CPI inflation at 1.9%, unchanged from December.

Both will underline that the RBA’s watch and wait approach that has been in place now for nearly 20 months, won’t be changing any time soon.

The report from the Bureau of Statistics showed Australian consumer prices stayed soft last quarter as core inflation began a third year below the central bank’s target, underlining the belief that any rate rise won’t happen until early 2019.

The AMP’s Chief Economist, Dr Shane Oliver said the “inflation data confirms that underlying pricing pressures in the Australian economy are still weak as the economy is still running below potential and competition in numerous industries (retail, insurance, finance, telecommunications) remains intense.”

"Interestingly, there remain a wide dispersion in price growth across the various consumer spending components. Inflation in the private sector part of the economy excluding volatile items is running at just 1.1% year as year (as measured by the “market goods and services ex volatile items” index).

“This is in contrast to inflation in the government-influenced parts of the economy where inflation is much higher with utilities prices up 9.3% over the year, health costs +4.2%, education 2.6% higher and alcohol and tobacco costs up by 7.0%.”

In fact the March quarter Consumer Price Index report from the Australian Bureau of Statistics showed that core inflation as measured by the Reserve Bank’s preferred measures (Trimmed Mean and Weighted Median) has now undershot the RBA’s target range of 2% to 3% for nine straight quarters, the longest period on record.

But that was influenced by weaker cost pressures in some ciities compared to the East Coast.

ABS Chief Economist Bruce Hockman, said in Tuesday’s release that “While the annual CPI rose 1.9 per cent, most East Coast cities have continued to experience annual inflation above 2.0 per cent, due in part to the strength in prices related to Housing and Food.

"Softer economic conditions in Darwin and Perth have resulted in annual inflation remaining subdued at 1.1 and 0.9 per cent respectively."

With wages growth still weak, even as hundreds of thousands of jobs have been created in the past 18 months, there’s no upward pressure on inflation.

There is “no particular rush” to hike, RBA Assistant Governor Christopher Kent said earlier on Tuesday in an answer to a question at a housing conference in Sydney.

While the next change in interest rate was likely to be up, he said progress on inflation and unemployment was expected to be only gradual.

The detail in the CPI report supports the idea that inflation is drifting, not rising.

The Bureau reported continuing deflation/disinflation in tradable prices - those that face the most international competition - which fell 0.4% in the quarter to be down 0.5% on the year.

In contrast, prices of non-tradables which mainly cover services climbed 0.8% in the quarter and 3.1% for the year. Much of that rise has been due to government approved or regulated cost increases for health, tobacco and alcohol products, energy and water and fees and charges.

The main price increases in the March quarter were for education, gas, vegetables, health care and drugs. Many sector and regulated prices - from transport charges to school fees - tend to rise at the start of the year.

The largest price declines came for holidays, tech equipment, furniture and clothing. Clothing alone dropped 2 percent in the quarter due to “competition and discounting activity in the retail industry”, the ABS said.

That’s a reference to the fierce price war in retailing thanks to weaker household spending, online competition (Amazon and local companies) and the influx of foreign retail chains such as Aldi, Costco and Zara.

View More Articles By Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.



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