Inflation crawls into RBA target band

The Reserve Bank can tick off inflation as one of its immediate worries, but new figures suggest its concerns over housing and employment will haunt it for a while yet.


The consumer price index has crept into the central bank’s two to three per cent inflation target for the first time in two years.

Inflation rose 0.5 per cent in the March quarter, a slightly smaller increase than most economists had been expecting, lifting the annual rate to 2.1 per cent.

“Inflation rates will grind slowly higher from here,” Commonwealth Bank of Australia chief economist Michael Blythe said on Wednesday.

“It is difficult to get concerned about inflation prospects when wages growth and labour costs remain very well contained.”

He expects it will be well into 2018 before the central bank has to raise the cash rates.

The central bank aims to keep inflation within a band over the course of the economic cycle.

But in the past two years, it’s been forced to cut the cash rate four times to a record low of 1.5 per cent to try to give the economy a boost through lower lending rates.

Among the most significant price rises in the quarter were for petrol (up 5.7 per cent), electricity (up 2.5 per cent) and new dwelling costs (up 1.0 per cent) but this was partly offset by a 6.7 per cent drop in fruit prices.

Underlying measures of inflation, which smooth out volatile price swings and are key to interest rate decisions, averaged just over 0.4 per cent growth in the quarter for an annual rate of 1.8 per cent.

The central bank will hold its next monthly board meeting on Tuesday.

In the minutes of the April board meeting, it emphasised the labour and housing markets “warranted careful monitoring over coming months”.

Mr Blythe said the housing component of CPI may only add to the Reserve Bank’s concerns about the housing market.

Hopes that March’s strong rise in employment was a turning point for the economy may be premature as new figures show demand for new workers wilting.

Job advertisements on the internet declined 0.6 per cent in March after a revised 0.3 per cent fall in February in trend terms, Department of Employment data released on Wednesday shows.

This left annual growth at just 0.9 per cent.

Six of the eight occupational groups monitored by the department fell in the month while declining in three states and the ACT.