NO.025

CONSUMER PRICE INDEX – MARCH QUARTER 2004

Today’s Consumer Price Index (CPI) shows that inflation remains low, with the All Groups CPI increasing by 0.9 per cent in the March quarter 2004 and yearly inflation declining to 2.0percent. This result places annual inflation at the bottom of the medium-term inflation target band.

Australian households benefited from price falls across a range of items in the March quarter, with falls in motor vehicles (down 1.8percent), audio, visual and computing equipment (down 4.5per cent), overseas holiday travel and accommodation (down 5.5percent) and clothing and footwear (down 1.4percent), partly reflecting the strong Australian dollar. Competition in the airline industry saw domestic holiday travel and accommodation prices decline (down 1.1percent). Despite drought which affects meat supplies, meat and seafood prices recorded only a minor increase (up 0.5percent).

The pick up in the CPI was driven by housing, food, automotive fuel, education and other seasonal price increases. Continuing high levels of activity in the construction sector saw house purchase prices rise 1.1percent in the March quarter. An increase in food prices (up 1.8 per cent) was driven by higher fruit and vegetable prices, with a combination of drought, floods and frost affecting supply. Higher automotive fuel prices (up 3.4percent), reflecting increases in world oil prices, and an increase in urban transport fares (up 1.9percent) contributed to an overall rise in transportation prices. Increases were recorded in pharmaceuticals (up 11.3percent) reflecting the annual resetting of the Pharmaceuticals Benefit Scheme safety net in the March quarter. Coinciding with the beginning of the school year, education recorded a strong increase (up 7.6percent), driven by indexed increases in HECS payments, some significant increases in state based TAFE fees and wage and operating costs in the preschool, primary and secondary education sectors.

Looking forward, the key medium-term influences on inflation point to continued moderate outcomes. Housing sector leading indicators are showing signs of a slow-down while wages pressures remain contained, underpinned by solid productivity growth. In addition, the stronger Australian dollar should see continued lower prices for imported consumables. These conditions are consistent with the Government’s forecasts that inflation will remain around, or a little below, the lower end of the medium-term inflation target band in the coming year.

Low inflation is a key to ensuring that the economy can grow strongly on a sustainable basis. Today’s CPI release, along with recent employment figures, shows that the Government’s macroeconomic policies continue to deliver solid economic outcomes.

MELBOURNE

28 April 2004

Contact: David Alexander (03) 9650 0244