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Inflation beats forecast for March quarter

Inflation has risen by a higher than expected 0.3 per cent in the March quarter – despite softening from December – reflecting the cost of supply restrictions from drought and bushfires and the early effects of COVID-19.

Economists had tipped a 0.2 per cent quarterly rise after a 0.7 per cent rise in the three months to December 31.

The consumer price index rose to a better-than-expected 2.2 per cent per cent in the 12 months to March 31, figures from the Australian Bureau of Statistics on Wednesday showed, up from 1.8 per cent three months earlier.

Annual inflation was expected to edge up to 1.9 per cent from 1.8 per cent in March.

This is the first time headline inflation has jumped above 2.0 per cent since the June quarter in 2018, but this is likely to be short-lived.

Economists maintain the current coronavirus crisis is very likely to push the economy into deflation in the June quarter.

A collapse in oil prices, combined with the introduction of free childcare and the deferral or reduction in some price increases, means year-ended headline inflation to June will likely turn negative for the first time since the 1960s.

RBA governor Philip Lowe indicated as much in the central bank’s economic update last week and BIS Oxford chief economist Dr Sarah Hunter agrees.

“Looking ahead, although prices may remain elevated for some groceries due to additional demand, the current crisis is very likely to push the economy into deflation in the June quarter,” Dr Hunter said in a note on Wednesday.

The most significant price rises in the March 2020 quarter were for food and non-alcoholic beverages, up 1.9 per cent, while alcohol and tobacco prices rose 1.6 per cent,.

Dr Hunter said the impact of the drought and bushfires was very clear, with fresh food prices up sharply.

Fruit and vegetables prices rose 6.0 per cent and meat and seafood by 2.0 per cent as drought restricted supply and the bushfires temporarily increased transport costs.

Education rose 2.6 per cent and health rose 1.7 per cent.

The most significant price falls for the quarter were for automotive fuel, down 6.0 per cent, domestic holiday travel and accommodation, down 3.1 per cent, and international holiday travel and accommodation, down 3.0 per cent.

The Australian dollar jumped to 65.25 US cents from 65.17 US cents in the minutes after the data’s release.

Originally published as Inflation beats forecast for March quarter

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