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Consumer Price Index: December Quarter 2004.

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Today’s Consumer Price Index (CPI) indicates that inflation remains moderate. The All Groups CPI increased by 0.8 per cent in the December quarter 2004 to be 2.6 per cent higher through the year. This outcome is in the middle of the medium term inflation target band.

Automotive fuel prices continued to rise, although at a slower pace than in recent quarters, reflecting movements in world oil prices. Automotive fuel prices rose by 2.5 per cent in the December quarter, adding 0.1 of a percentage point to the overall increase in the CPI for the December quarter and adding 0.6 of a percentage point to the CPI through the year. Excluding the impact of automotive fuel prices, the CPI increased by 0.7 per cent in the December quarter and by 2.0 per cent through the year.

House purchase prices increased by 1.5 per cent in the December quarter, reflecting continuing strong demand for both labour and materials in a number of capital cities. Other contributors to the increase in the CPI were food prices (up 1.4 per cent), a seasonal increase in domestic holiday travel and accommodation prices (up 4.3 per cent) and motor vehicle prices (up 1.5 per cent). The increase in food prices was driven by a 5.3 per cent increase in fruit and vegetable prices, partly reflecting poor seasonal conditions in Queensland early in the quarter. Motor vehicle prices increased as dealers reduced discounting on old models.

Australian households benefited from price falls across a range of items in the quarter. In particular, the price of clothing and footwear fell by 1.4 per cent in the December quarter, reflecting lower prices for summer clothing lines, while pharmaceutical prices fell 4.1 per cent, reflecting the cyclical impact of the Pharmaceutical Benefits Scheme Safety Net.

The medium term outlook is for inflation to remain low. Despite the unemployment rate falling to its lowest level since 1976, wage pressures are expected to remain contained, and most other business input costs should also remain moderate. The strong Australian dollar should help to keep the price of imported consumables low, while slower activity in the housing sector is likely to lead to a moderation in price pressures in the construction industry.

This positive outcome, along with recent employment figures, ensures that solid fundamentals are in place for achieving sustainable economic growth and ongoing productivity gains in the period ahead. Australia’s continued moderate inflation results are evidence of the success of the Government’s macroeconomic policies.

MELBOURNE 25 January 2005

Contact: David Alexander 03 9650 0244