Peter Costello

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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.

27 April 2005

Contact: David Alexander
(02) 6277 7340

26 Apr 2005

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