If you bought petrol during March you won’t be surprised that the TD Securities — Melbourne Insititute monthly inflation gauge — leapt 0.4% during the month.
The primary driver was a 12.9% increase in the cost of automotive fuel. Fruit and vegetables were also up, rising 2.6% while tobacco was also 1.4% higher. Offsetting these rises somewhat was the fall in alcoholic beverages (-1.2%), rents (-1.2%) and clothing (-1.8%).
But even with the big monthly move in the inflation gauge and the surge in petrol prices overall, the year on year inflation rate sits at a very mild 1.5%.
This means that Annette Beacher, Chief Asia-Pacific Macro Strategist at TD Securities, can now forecast the ABS official CPI. She says we can “rule out oil-related deflation.” But she is still only expecting a very low quarterly rise of just 0.1% for Q1 2015. That will give a year on year headline rate of inflation of just “1.2%” according to Beacher. She expects underlying inflation “to lift by 0.5% in the quarter, for an annual rate of 2.2%”.
Beacher says that the RBA is in an “uncomfortable position” at the moment.
“Low inflation certainly allows the RBA to cut the cash rate further, we pencil in only one more cash rate reduction to 2 per cent in May, with risks of delay into the second half of the year, should the housing sector keep expanding at an uncomfortable pace,” she said.
That makes her one of the few “No” votes for the RBA next Tuesday.