Now for the Federal Budget in two and a half weeks with no rate rise in the offing and next week’s Reserve Bank board meeting longer relevant.
That seems to be the attitude of financial markets and in the politically sensitive mortgage belts.
And they are probably right but should remember that for now the inflationary pressures we saw for most of 2006 have eased, but they have not gone away.
As the RBA will confirm in its latest statement of monetary policy to be released a week today.
A summary of that would have been released next Wednesday morning with the rate rise that a poor CPI figure would have brought.
The latest CPI numbers do confirm the rightness of the RBA in holding its hand at the April meeting, although the hawks in the financial markets wanted a rate rise then!
The bears in the currency markets still want a rate rise, or rather are hoping for one. The Aussie dollar fell from around 83.30 USc on Tuesday morning to a low of 82.45 USc after the CPI was released because the pressures on rates were seen as having eased.
But yesterday, with no trading happening in Australian time, punters took the dollar for a run up past the 83 USc mark during the day as traders bet on a cut in US interest rates later this year.
But despite how the low Consumer Price Index for March is being interpreted, inflation is still too high for the comfort of the central bank.
Its own measures are telling us that.
Here’s why. The CPI rose just 0.1 per cent per cent in the March quarter of this year from December quarter, for an annual inflation rate of 2.4 per cent, according to the Australian Bureau of Statistics.
That is just at the upper end of the Reserve Bank’s target of 2 to 3 per cent, and will be greeted with a sigh of relief because a rate rise is not on the cards for a while (prices in the June quarter will be lower, even if oil prices spike).
The Producer Price Index, released on Monday was stable with the impact of the stronger Australian dollar showing up.
But on the RBA’s measures of underlying inflation – the weighted mean and trimmed mean measures – inflation is still higher than it is in the CPI.
Both measures put it at 2.7per cent for the quarter, down from 3 per cent for the December quarter
So a small improvement, but nowhere near as dramatic as the headline figures. And the RBA doesn’t worry about the headline figures in the CPI. It discounts those into its two measures and then looks closely at the PPI numbers.
Market economists and commentators had been tipping an 0.6 per cent quarterly increase, up from the 0.1 per cent drop recorded in the December quarter, for an annual rate of 3 per cent annual rate (against 3.3 per cent for the year to December 31).
So smiles all round.
Food prices were the biggest contributor to the fall, falling 2.3 per cent in the quarter, thanks to a big drop in banana prices, which was expected. Clothing and footwear, household items, recreation and financial services also fell.
The biggest prices rises were for pharmaceuticals up a massive 12.8 per cent, house purchase (up 1.0 per cent), secondary education fees (up a large 7.1 per cent) and rents (up 1.4 per cent).
As we saw in the PPI on Monday the drought is having an impact with dairy foods costing more (higher milk prices) and the prices of sheep, beef and grains also rising. They have yet to fully work their way into the CPI.
