Peter Costello

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Consumer Price Index: June Quarter 2004



Today’s Consumer Price Index (CPI) is a solid result. It shows that inflation was moderate during a sustained period of strong economic growth with unemployment at record lows.

The All Groups CPI increased by 0.5 per cent in the June quarter 2004. Inflation in the year to the June quarter 2004 was 2.5 per cent, in the middle of the inflation target band.

Increased world oil prices and the recent depreciation of the exchange rate saw petrol prices rise by 5.8 per cent in the June quarter. Excluding the impact of petrol prices, the CPI increased by 0.3 per cent in the June quarter, and by 2.1 per cent over the past year.

House purchase prices rose by 1.4 per cent in the June quarter, reflecting high levels of demand in the construction industry. The 5.1 per cent increase in the price of hospital and medical services reflected an increase in private health insurance premiums, partly offset by the impact of the Medicare Plus Safety Net.

Food prices fell by 0.9 per cent in the June quarter, to some extent unwinding the drought-related increases of recent years. Bread prices fell by 0.5 per cent in the June quarter and by 4.5 per cent over the past year, following the record wheat crop in 2003. Improved growing conditions for a number of vegetable crops led to an 11.4 per cent fall in the price of vegetables, while fruit prices fell by 3.2 per cent in the quarter, driven by the increased availability of seasonal products.

Increasing competition led to price falls in a number of sectors. Audio, visual and computing equipment prices fell by 5.2 per cent in the June quarter, reflecting ongoing quality improvements and discounting on a number of home entertainment items. The price of domestic holiday travel and accommodation fell by 1.7 per cent, consistent with the usual seasonal pattern and increased competition in the domestic airline industry.

June quarter results support forecasts that inflation will remain within the inflation target band in the coming year. Despite the unemployment rate falling to 23-year lows, wage pressures remain contained. Housing sector leading indicators are showing signs of a slow-down, suggesting that price pressures in the construction industry should moderate over the medium term.

Australia’s continued moderate inflation outcomes are evidence of the success of labour and product market reforms. These reforms have created an environment that promotes solid economic and employment growth, and continuing improvement of living standards in Australia.

28 July 2004

Contact: David Alexander
(02) 6277 7340

28 Jul 2004

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