The official measure of consumer prices rises by less than expected, further dampening expectations of a swift reversal in ultra-low interest rates.

The official measure of consumer prices has risen by less than expected, with inflation of 0.6 per cent over the three months to March.

  • CPI increased 0.6 per cent over the March quarter and 1.1 per cent over the year to March 31
  • Economists were generally tipping a 0.9 and 1.4 per cent rise for the quarter and year respectively
  • The weaker than expected price increases may allow the Reserve Bank to maintain its stimulus for longer

The ABS data show prices rose an average of just 1.1 per cent over the past year.
Economists were generally tipping a much larger increase in prices, which could have increased speculation that the Reserve Bank might roll back some of its extraordinary stimulus measures earlier than expected, potentially putting upward pressure on mortgage interest rates.
However, despite reports of severe materials and labour shortages in some parts of the construction sector, price rises were totally offset by government grants.
Without the effect of the federal government’s HomeBuilder subsidy and various state grants, the ABS said home building costs would have jumped 1.9 per cent in the quarter.
The ABS says the cost increase of new dwelling purchase by owner-occupiers would have been much greater without government subsidies.
The official figures also fail to capture a very recent surge in rents across many parts of Australia, which is showing up in private figures, such as those from CoreLogic.
With the HomeBuilder scheme now closed for new applicants and rents back on the rise, economists expect some serious catch up in inflation figures over the next couple of quarters.
More to come.