Australia Q1 annual inflation jumps to highest since September 2014, remains unchanged q/q

Australia’s first-quarter annual inflation jumped to its highest since September 2014, although the q/q figures remain unchanged during the period. The Q1 CPI data provides confirmation that inflation has stabilised and is creeping toward the policy target band.

Headline CPI is now above 2 percent y/y, but core inflation remains softer. The average of the two core measures rose 0.4 percent q/q, in line with the previous two quarters but the ANZ diffusion index continues to point to soft price pressure across a broad range of items. The data is consistent with the RBA’s profile and, as such, has no policy implications.

Further, headline CPI rose by 0.5 percent q/q in Q1; the strongest categories were fuel (+5.7 percent), new dwelling purchase prices (+1.0 percent), medical and hospital services (+1.6 percent) and electricity (+2.5 percent). Partially offsetting this was a seasonal fall for international holiday and accommodation (-3.8 percent) as well as falls for fruits (-6.7 percent) and furniture (-3.5 percent).

While the Q1 data suggest that core inflationary pressures have stabilised (it is the third consecutive 0.4 percent quarterly outcome), the underlying price pulse remains weak. The ANZ Diffusion index remains low, with just 34 percent of the basket rising by more than 2.5 percent annualised in Q1.

However, tradable inflation remained weak, falling by 0.2 percent q/q in Q1, while non-tradable prices rose by 0.9 percent. Weak wage growth continues to impact, with market services inflation flat in Q1, and up just 0.7 percent y/y.