CPI fails to ignite despite fuel spike

Colin Brinsden, AAP Economics and Business Correspondent
(Australian Associated Press)


The annual rate of inflation has edged up to 1.1 per cent, well short of expectations, and despite a near 10 per cent spike in fuel costs in the first three months of the year.

Economists said the limp rise confirms the Reserve Bank’s view that interest rates were unlikely to rise for years.

Other Australian Bureau of Statistics data also showed payroll jobs fell in the early days of April, although it said it was difficult to gauge whether this was largely the result of the timing of Easter or the impact of JobKeeper ending.

The bureau said the consumer price index rose 0.6 per cent in the March quarter, compared with predictions for a 0.9 per cent rise.

The largest contribution to inflation pressures in the quarter was an 8.7 per cent increase in fuel prices.

The annual rate of 1.1 per cent compared with 0.9 per cent at the end of 2020.

Annual underlying measures of inflation, which smooth out wild price swings in the CPI and are a key guide to interest rate decisions, were equally subdued at an average 1.2 per cent.

This is way short of what the RBA wants to see before it even starts considering lifting the key cash rate from a record low 0.1 per cent.

“Today’s inflation figures hammer home just how significant is the RBA’s low inflation challenge,” HSBC chief economist Paul Bloxham said.

“Despite a strong upswing in the economic activity indicators, as well as rising oil prices, the underlying measures of inflation remain very low.”

The minutes of the RBA’s April board meeting reiterated the central bank has no intention of lifting the cash rate until inflation is sustainably within its two to three per cent target band – an event that it sees as unlikely until 2024.

The RBA does expect annual CPI to rise temporarily to about three per cent in the middle of this year as a result of the reversal of some pandemic-related price reductions.

However, underlying inflation was likely to remain below two per cent over both 2021 and 2022.

Meanwhile, the bureau’s payroll jobs report showed a decline of 1.8 per cent in the fortnight to April 10 following a rise of 0.2 per cent in the previous two weeks.

“The latest fortnight included the Easter holiday period which regularly sees a seasonal fall in a range of labour market indicators,” ABS head of labour statistics Bjorn Jarvis said.

“These seasonal factors make it difficult to gauge any effect of the end of the JobKeeper wage subsidy on March.”

He said the next fortnight of data, available on May 11, should provide a better sense of the state of the labour market after JobKeeper.

Treasury has estimated about 150,000 jobs could be lost as a result of the wage subsidy ending.

“We are still comfortable with our view that the ending of JobKeeper will see a muting in the pace of the recovery in employment, rather than a stalling,” Westpac economist Lochlan Halloway said.


Like This