NO.035

CONSUMER PRICE INDEX – MARCH QUARTER 2005

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

remains moderate in Australia. The All Groups CPI increased by 0.7 per cent

in the March quarter 2005, to be 2.4 per cent higher through the year. This

outcome is around the middle of the medium-term inflation target band.

Australian households benefited from price declines across a range

of items in the March quarter, including audio, visual and computing equipment

(down 6.4 per cent), fruit (down 3.5 per cent), furniture and furnishings (down

2.1 per cent), and clothing and footwear (down 1.4 per cent). Notably, motor

vehicles prices fell by 1.4 per cent, reflecting tariff reductions from 1 January

and extensive competition and discounting by dealers.

Automotive fuel prices fell by 2.7 per cent in the March quarter

2005, after increasing for the past four quarters. The fall in automotive fuel

prices subtracted around 0.1 of a percentage point from the overall increase

in the CPI in the March quarter.

Continuing strong demand for labour and materials in the construction

sector in some capital cities saw house purchase prices rise 1.4 per cent in

the March quarter. Other components that contributed positively to inflation

in the March quarter were food, education and health. The increase in food prices

(up 0.9 per cent) was driven by higher prices for vegetables, and beef and veal.

Price rises in health were mainly due to rises in pharmaceutical prices (up

16.8 per cent), largely reflecting the annual resetting of the Pharmaceutical

Benefit Scheme (PBS) safety net threshold together with the increase in PBS

contributions from 1 January 2005. Education was up by 6.0 per cent, reflecting

increases in HECS payments, in addition to the regular increase that occurs

at the beginning of each school year.

The key influences on inflation point to continued moderate outcomes,

with inflation expected to remain within the medium-term target band. Despite

the unemployment rate falling to a 28-year low, wages pressures remain contained

and other business input costs also remain moderate. Furthermore, the slowing

in housing activity suggests that price pressures in the construction industry

should moderate.

Today’s CPI release, along with recent labour market figures,

confirms that the Government’s macroeconomic policies continue to deliver

strong economic outcomes.

CANBERRA

27 April 2005

Contact: David Alexander

(02) 6277 7340