Interpac Business and Migration Solutions Melbourne Australia

 (April 4, 2011)

CONSUMER prices rose to a 14-month high in March, driven by rises in the escalating cost of food and petroleum products, brought about by disasters in Queensland and the civil war in Libya.

The TD Securities - Melbourne Institute monthly inflation gauge jumped 0.6 per cent in March, tripling the 0.2 per cent rise in February. It was the biggest monthly increase since January 2010.

In the year to March, the inflation gauge was 3.8 per cent, compared to the 3.6 per cent in the year to February.

It is well above the Reserve Bank of Australia's (RBA) target band of two to three per cent.

Recent Australian Bureau of Statistics' (ABS) data showed the Consumer Price Index (CPI) rose by 0.4 per cent in the December quarter for an annual headline inflation rate of 2.7 per cent.

TD Securities head of Asia-Pacific research Annette Beacher said the TD inflation gauge was continuing to show contrasting trends.

"Headline inflation is clearly climbing higher towards four per cent, while our underlying measure is signalling more contained inflationary pressure, returning to the mid-point of the RBA's (Reserve Bank of Australia) two to three per cent target band,'' Ms Beacher said.

Flood-driven rises in the prices of fruit and vegetables, automotive fuel and alcohol and tobacco contributed most to the price rises in March, the report said.

Due to an ongoing lack of supply from Queensland, the prices of fruit and vegetables rose by 11.3 per cent in March, following a 5.1 per cent rise in February.

The price of automotive fuel rose by 5.3 per cent in March, building on the 1.6 per cent rise in February.

During the month, war broke out in Libya, which produces two per cent of the world's oil, pushing up the price of crude oil.

The inflation gauge also showed a fall in the price of household supplies and rents.

Ms Beacher expects headline inflation to increase by 1.0 per cent in the March quarter to an annual rate of 2.8 per cent.

"We are mindful that this pickup in inflation is taking a lot longer to materialise than we expected,'' she said.

The trimmed mean inflation gauge, which excludes volatile items such as automotive fuel, fruit and vegetables, rose 0.3 per cent in March, following a 0.1 per cent fall in February.

In the 12 months to February, the trimmed mean rose 2.4 per cent.

The RBA adjusts the cash rate to keep inflation between two to three per cent over the course of the economic cycle.

Ms Beacher expects the bank to keep the cash rate on hold at 4.75 per cent after its board meeting tomorrow.

(Source:News.com.au)