NO.026

Consumer Price Index – March Quarter 2001

Today’s Consumer Price Index (CPI) confirms that inflationary trends in

Australia remain in check. While the All Groups CPI increased by 1.1 per cent

in the March quarter 2001, this largely reflects the effect of special factors

affecting food prices. Looking through these factors, the CPI increased by

a moderate 0.6 per cent in the March quarter, following a low 0.3 per cent

increase in the CPI in the December quarter.

A number of special factors contributed to a sharp increase in food prices

in the March quarter. Flooding in northern New South Wales and southern Queensland

caused severe supply shortages in fruit and vegetables, which increased in

price by 13.5 per cent in the quarter, adding 0.3 percentage points to the

CPI. These price rises should be reversed in coming quarters as supply returns

to more normal levels. Higher world prices for Australia’s meat products

flowed into a 4.1 per cent increase in domestic meat prices in the March quarter.

There were also seasonal increases in education and pharmaceutical prices,

which together added around 0.2 percentage points to the increase in the quarter.

In the March quarter, petrol prices fell by 3.7 per cent reflecting an

easing in world oil prices and the Government’s decision to reduce excise

on petrol in early March. Clothing prices fell significantly in the quarter,

following sales in the early part of the year. Travel and telecommunication

prices also fell, at least partly reflecting increased competition.

As well as the reduction in excise on petrol, several other Government policies

are likely to put downward pressure on prices of some consumer items over coming

quarters. Reduced excise rates on draught beer should be reflected in the CPI

in the June quarter. In addition, the Government’s enhancement of the

First Home Owners’ Scheme will help to reduce the house purchase component

of the CPI in the June quarter and, together with lower interest rates, will

stimulate the building sector. Measures introduced as part of The New Tax

System which are yet to take effect, such as the abolition of Financial

Institutions Duty, will also put downward pressure on prices in coming quarters.

The increase in the CPI through the year to the March quarter 2001 of 6.0 per cent

includes the one-off impact from the introduction of The New Tax System

(which is likely to have contributed around 3 percentage points in the

September quarter 2000), the effect of higher world oil prices on domestic

petrol prices and the effect of a number of one-off and temporary factors on

food prices in the March quarter. Looking through these influences, the CPI

is estimated to have increased by between 2 and 2 per cent over

the past year.

A low inflation environment following the introduction of The New Tax System

has allowed interest rates to fall, with the Reserve Bank of Australia reducing

official interest rates on three separate occasions this year by a total of

1 percentage points.

Canberra

24 April 2001