Inflation up lower than expected 0.4% in March quarter with rise in new dwelling prices noted

The Consumer Price Index (CPI) rose  by a lower than expected 0.4% in the March quarter, according to ABS figures released today.

The trimmed mean increased by 0.3% to 2.2% year-on-year while the weighted mean was up 0.5% to 2.6% year-on-year with both measures of underlying inflation well within the RBA’s target inflation band of 2% to 3%.

This gives the RBA scope to cut the cash rate further if it deems it necessary.

Through the year, headline CPI rose 2.5% compared with a rise of 2.2% through the year to the 2012 December quarter.

Economists surveyed by Bloomberg last week forecast a 0.7% rise in the headline inflation rate to 2.8% year-on-year with the trimmed mean and the weighted mean forecast to rise 0.5% to 2.4% year-on-year.

"It is clear that at present inflation is not an issue, meaning that rates can stay lower for longer," commented CommSec economist Savanth Sebastian.

"Underlying inflation is tracking smack in the middle of the Reserve Bank’s 2% to 3% target band.

"Effectively the low inflation result ensures the Reserve Bank can maintain an easing bias and not feel an urgent need to shift to a more neutral stance in the next few months," he added.

The most significant price rises in the March quarter 2013 were for new dwelling purchase by owner-occupiers (+1.7%), pharmaceutical products (+7.6%), tertiary education (+6.5%) and tobacco (+3.7%).

The most significant offsetting price falls were for international holiday travel and accommodation (–5.2%), furniture (–6.8%) and fruit (–7.0%).

The overall housing component of inflation rose 1.2% in the March quarter 2013 with the other main contributors to this rise - apart from new dwelling purchase by owner-occupiers - being electricity (+2.4%) and rents (+0.8%).

Over the twelve months to the March quarter 2013, the housing group rose 5.1% with rises in all categories. The main contributors to the rise were electricity (+17.1%), rents (+3.5%) and new dwelling purchase by owner-occupiers (+2.8%).