Prices up on drought, fire

March quarter inflation the highest since 2014

INFLATION has risen by a higher-than-expected 0.3 per cent in the March quarter, reflecting higher costs from supply restrictions during drought and bushfires and the early effects of COVID-19.

Economists had tipped a 0.2 per cent quarterly increase 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 in the 12 months to March 31, figures from the Australian Bureau of Statistics yesterday showed, beating expectations of a rise to 1.9 per cent from 1.8 per cent in December.

It is the first time CPI has been within the Reserve Bank’s target range of 2.0 per cent to 3.0 per cent since the June quarter of 2018, and is at its highest since the September quarter of 2014.

This is likely to be shortlived, however, as economists maintain the 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 yearend headline inflation to June will likely turn negative for the first time since the 1960s.

RBA governor Philip Lowe (pictured) 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.

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 was released yesterday.