With the March quarter headline inflation rate of -0.2% shocking markets and leading to the RBA cutting the official cash rate, investors will be watching carefully for signs that inflation is not continuing to fall. The official ABS statistics are released quarterly and so the monthly Inflation Gauge released by the Melbourne Institute will be heavily scrutinised to determine future interest rate direction.
The latest data for April shows that consumer prices edged up just 0.1% as fruit and vegetables, fuel and medical services, rose between 3% and 4%, offsetting the 4% fall in travel and accommodation prices. 12 month inflation (blue line below) fell for a third month in a row, from 1.7% to 1.5%.
Falling fuel prices have been responsible for low headline inflation rates until recently. However, given global oil prices have rebounded since reaching a low of USD$28 in February, continued low headline inflation figures are the result of other factors.
According to the Melbourne Institute’s Dr. Sam Tsiaplias, “The March quarter ABS CPI was driven by significant falls in the fuel price, particularly in February. The Monthly Inflation Gauge also fell by 0.2 per cent in February. April’s data, which showed an increase in both the headline and trimmed mean measures, provides an initial indication that prices will increase in the second quarter.”