Inflation returns to RBA’s target band

Marty Silk
(Australian Associated Press)

 

Rising fuel and home prices have helped lift headline inflation into the Reserve Bank’s target band for the first time in more than two years.

Consumer prices rose 0.5 per cent in the March quarter, missing economists’ expectations of a 0.6 per cent rise, according to figures from the Australian Bureau of Statistics released Wednesday.

However, the quarterly rise took the headline inflation rate to 2.1 per cent in the year to March 31.

That’s the first time consumer price rises have been within the RBA’s target band of between two and three per cent since the September quarter of 2014.

CommSec chief economist Craig James said inflation is creeping back up after bottoming out and signalled that the RBA would keep interest rates steady at 1.5 per cent.

“The Reserve Bank doesn’t need to cut rates again with inflation trending higher, rather than lower,” he said in a note.

“And there are doubts that rate cuts would actually do much in terms of driving the economy higher and lifting inflation.

“But similarly, rate hikes are off the agenda.”

It is also means inflation remains on track to hit the central bank’s forecast of two per cent by the June quarter of 2017.

The ABS said the main drivers of inflation in the March quarter were automotive fuel, new dwellings, medical and hospital services and electricity.

Partially offsetting those gains were falls in international holiday travel and accommodation, fruit and furniture prices.

Meanwhile, underlying or core inflation, which strips out volatile price movements, remained sluggish in the quarter and below the RBA’s target band.

Core inflation rose just 0.45 per cent in the three months to March and 1.8 per cent annually, the ABS said.

Westpac chief currency strategist Robert Rennie said investors were disappointed with the core inflation figures and sold off the Australian dollar.

The currency had slumped to 75.17 US cents at 1220 AEDT, from 75.45 cents before the figures were released at 1130.

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