NO.026

CONSUMER PRICE INDEX – MARCH QUARTER 2006

The All Groups CPI increased by 0.9 per cent in the March quarter 2006 to be 3.0 per cent higher through the year.

Excluding the impact of automotive fuel prices, inflation remained moderate, with the CPI increasing by 2.2 per cent through the year. Following a fall of 0.9 per cent in the December quarter 2005, automotive fuel prices rose by 1.4per cent in the March quarter 2006, driven by higher world crude oil prices. Through the year to the March quarter 2006, automotive fuel prices rose by 20.2per cent.

Australian households benefited from price falls across a range of items in the March quarter, including clothing and footwear (down 2.5 per cent – the largest quarterly fall on record); furniture and furnishings (down 2.3 per cent); audio, visual and computing equipment (down 1.5 per cent); household appliances, utensils and tools (down 1.1 per cent); and financial services (down 0.9percent).

High levels of construction activity in some capital cities saw house purchase prices rise by 0.3percent in the March quarter. However, this represents the lowest rate of increase in more than four and a half years, in part reflecting the introduction of various bonuses and incentives in some markets to attract new home buyers. Seasonal increases in utility prices also contributed to the overall increase in housing costs (up 0.6per cent) in the March quarter.

Other components that contributed to inflation in the March quarter were health, education and food. Price rises in health were mainly due to rises in pharmaceutical prices (up 14.2 percent), reflecting the annual resetting of the Pharmaceutical Benefit Scheme (PBS) safety net threshold. Education prices were up by 5.6percent, reflecting annual fee increases occurring at the commencement of the new education year.

The increase in food prices (up 1.4 per cent) was mainly driven by higher prices for vegetables due to adverse weather conditions and seasonal shortages in major growing areas, and higher transportation and packaging costs leading to higher prices for bread, milk and take-away meals.

While inflation is expected to remain contained in the medium term, recent increases in oil prices, if maintained, may impact more significantly on inflation in the period ahead. However, a moderating effect on inflation is expected from the easing of prices in the housing construction sector and the continuing containment of labour costs and final stage producer prices.

Despite a further increase in world oil prices, and a consequent impact on automotive fuel prices, inflation remains contained. Moderate inflation, combined with a three-decade low in the unemployment rate, confirms that the Government’s macroeconomic policies continue to deliver strong economic outcomes.

CANBERRA

26 April 2006

Contact: David Alexander

(02) 6277 7340