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Economics update | 28 April 2023
28 Apr 2023
Inflation eases in March quarter, but is still very high
There are clear signs that inflation peaked at the end of 2022 and is now on the way down. After rising strongly and steadily throughout 2022, the Consumer Price Index turned down in the March quarter 2023, falling to 7.0 per cent year-on-year from 7.8 per cent in December 2022. While CPI rose by 1.4 per cent quarter-on-quarter, this was the lowest quarterly rise since December 2021.
While the price of goods eased considerably over the quarter, falling from 9.1 per cent year-on-year to 7.6 per cent, the price of services continued to rise, up from 5.5 per cent to 6.1 per cent. This is the highest reading for services inflation since 2001.
The easing was more pronounced in the monthly data, with March CPI down to 6.3 per cent year-on-year, from 6.8 per cent in February and 8.1 per cent in December 2022. The main contributors to inflation in March were rents (up 5.3 per cent in the year to March), electricity (up 15.7 per cent) and food (11.8 per cent). But this was offset by automotive fuel prices (down by 8.2 per cent in the year to March) and the cost of dwelling construction (which has eased to 11.1 per cent year-on-year from 13 per cent in February), as supply chain constraints continued to unwind.
While price pressures are easing, inflation is still high. It is expected to be some time yet before inflation returns to the target range of 2 per cent to 3 per cent to provide relief to households and businesses.
All eyes are now on the Reserve Bank Board Meeting next week, with these better-than-anticipated inflation figures expected to lead to the cash rate remaining steady at 3.6 per cent in May.
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