Inflation is stirring, perhaps just enough to get the Reserve Bank a little anxious at next Tuesday’s monthly board meeting.
Annual CPI inflation jumped to 2.9% in the year to March, from a more comforting 2.1% in the 12 months ending December 2009.
The March quarter figures from the ABS put inflation at the top of the Reserve Bank’s preferred range of 2% to 3% at 2.9% for the year to March, after the 0.9% in the quarter from the December quarter.
That was up from the 0.5% rise in the December quarter.
And the RBA won’t like the ABS’s comments that housing costs were a major driver in all eight capital cities, with assistance from a solid rise in health costs.
"At the eight capital cities level, the housing group was the highest positive contributor to the quarterly movement driven by rises for electricity. Increases were recorded in all capital cities with the housing group the largest positive contributor in Melbourne, Adelaide and Darwin.
"Over the twelve months to March quarter 2010, the housing group increased 6.1% mainly due to rises in electricity (+18.2%), house purchase (+4.1%), rents (+4.6%) and water and sewerage (+14.0%)," the ABS said.
Housing in fact added 0.3 of a percentage point to the quarter’s rise in the CPI, financial and insurance services contributed 0.2 of a percentage point, as did health prices, while the cost of education also added 0.2 of a percentage point.
But a combination of factors came together to push up housing costs across the board: greedy state governments boosting utility charges, or allowing them to be raised; the Reserve Bank’s rate rises being passed on and the impact of those on rental costs as the number of properties available for renters fell, and costs rose for landlords.
According to the Reserve Bank’s preferred measures, inflation eased in the year to March, but jumped in the quarter. Over the 12 months to March the Weighted Mean inflation rate eased to 3.1% from a revised 3.5% annual rate in the year to December, with the Trimmed Mean measure down to 3% from 3.2%.
But the quarterly measures saw the Weighted Mean rise to 0.8% from 0.6% and the Trimmed Mean rise to 0.8% from 0.5%, in line with the rise in the quarterly CPI from 0.5% in the December three months to 0.9% in March.
The bank knows the cost of living is starting to rise, that’s one of the reasons why we have had five rate rises since last October, including two in a row in February and March, but the bank is targeting inflation now to prevent it becoming a problem next year.
If anything, the CPI will make the RBA wonder a bit harder if it should reveal a rate rise next week to shift the cash rate closer to average (as the bank has been suggesting it is doing in recent minutes and post board statements) a bit faster than previously planned.
The ABS said the most significant price rises this quarter were for automotive fuel (+4.2%), pharmaceuticals (+13.3%), deposit and loan facilities (+3.4%), vegetables (+10.3%), electricity (+5.9%), house purchase (+1.2%) and hospital and medical services (+2.9%).
"The most significant offsetting price falls were for furniture (-4.6%), fruit (-5.7%), domestic holiday travel and accommodation (-2.3%), audio, visual and computing equipment (-5.9%), men’s outerwear (-6.7%) and children’s and infants’ clothing (-9.9%).
"At the All groups level, the CPI rose in all capital cities this quarter. Melbourne and Perth registered the highest increases with rises of 1.3% and 1.1% respectively, while rises for all other capital cities were in the range of 0.5% to 0.8%.
"The health group recorded the second highest positive contribution with rises in all capital cities ranging from 3.1% in Adelaide to 5.4% in Brisbane. In four capital cities the health group was the highest positive contributor.
"This was mainly due to increases in pharmaceuticals prices across all capital cities ranging from 11.9% in Perth to 15.4% in Hobart."
But the CPI was also distorted by a couple of factors: the rise in health costs followed the usual boost from the usual early year changes to the Pharmaceutical Benefits Scheme: Pharmaceutical costs jumped 13.3% in the quarter, but over the year rose by just 1.9%.
"Pharmaceuticals prices rose as a result of the cyclical reduction in the proportion of consumers who qualify for subsidised medications under the Pharmaceuticals Benefit Scheme at the start of each calendar year." the ABS said.
And the impact of the two rate rises in the quarter (and the carry-over impact of the three in the final quarter of 2009) contributed to a rise in housing costs and what the ABS says are deposit and loan facilities, which jumped 3.4%.
