NO.005

CONSUMER PRICE INDEX – DECEMBER QUARTER 2003

Today’s Consumer Price Index (CPI) shows that inflation remains subdued

in a strongly growing economy, with the All Groups CPI increasing by 0.5 per

cent in the December quarter 2003.

Over the past year, the CPI has risen by 2.4 per cent, well within the medium-term

inflation target band of 2 to 3 per cent on average over the cycle. This is

a strong result in an environment of solid economic growth.

Australian households benefited from price falls across a range of items in

the December quarter, including motor vehicles (down 0.8 per cent), fuel (down

0.9 per cent), audio, visual and computing equipment (down 5.5 per cent) and

pharmaceuticals (down 3.9 per cent). Over the past eight years, motor vehicle

prices have fallen by 14.8 per cent, reflecting reductions in tariff rates,

the replacement of the 22 per cent wholesale sales tax with the goods and services

tax, and productivity gains by Australia’s domestic car producers. Healthy

competition and the appreciation of the Australian dollar contributed to declines

in clothing and footwear (down 0.2 per cent) and household furnishings, supplies

and services (down 0.1 per cent).

High levels of activity in the construction sector saw house purchase prices

rise 1.0 per cent in the December quarter, adding 0.1 of a percentage point

to the overall increase in the CPI. Price increases were also recorded for food

(up 1.8 per cent, reflecting the ongoing impact of the drought and some localised

adverse weather conditions) and domestic holiday and travel (up 6.6 per cent,

consistent with the usual seasonal pattern).

The Government’s forecasts in the recent Mid-Year Economic and Fiscal

Outlook 2003-04 were for inflation to remain around the lower end of the

medium-term inflation target band in the coming year. Competitive product and

labour markets have helped to ensure that growth in wages and other business

input costs remains moderate. The recent appreciation of the Australian dollar

will also act to restrain price pressures in the economy.

With these solid fundamentals in place, today’s CPI release confirms that

Australia’s solid economic growth and low unemployment continues to be

underpinned by moderate price inflation. Continued sensible wage demands and

ongoing productivity growth are critical to maintaining this performance.

MELBOURNE

28 January 2004

Contact:

David Alexander

(03) 9650 0244