Consumer prices likely on their way down

April 25, 2023 01:55 PM AEST | By AAPNEWS

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Consumer prices likely on their way down — Image source: AAPNEWS

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An expected fall in consumer prices will be welcomed by households stretched thin by expensive goods and services.

But while economists foresee a sharp drop in headline inflation in the quarterly consumer price index being released on Tuesday, even a generous decline may not be enough to steer the reserve bank away from a May interest rate hike.

Consumer prices started surging last year due to global supply side issues, Russia's invasion of Ukraine and stimulus programs during the pandemic, but the Australian Bureau of Statistic's inflation quarterly index likely passed its peak last quarter.

A Reuters poll forecast a 1.3 per cent lift in headline inflation in the March quarter, down from a 1.9 per cent lift in the final three months of 2022.

On an annual basis, inflation is expected to sink to 6.9 per cent after hitting 7.8 per cent in the December quarter.

As well as signs of moderation in the monthly inflation gauge, St George senior economist Pat Bustamante said several one-off factors that drove last quarter's increase, such as the unwinding of state power subsidies and the fuel excise cut, and would not feature in the March edition.

But Mr Bustamante said the RBA, which opted to keep interest rates on pause last month after 10 consecutive hikes, will be on the lookout for a decent fall in core inflation.

Core inflation, which strips out large jumps and falls in prices, increased by 6.9 per cent in the year to December, its fastest pace in more than three decades.

The St George economist said the reserve bank would be hoping for a core inflation fall in line with its most up-to-date forecast.

"The closer the March quarter outcome is to the RBA's June forecast of 6.2 per cent, the more likely the RBA board will be satisfied that they have done enough tightening to ensure inflation is on track to decline to the target band of two-three per cent at the desired pace," he wrote in an analysis.

The RBA board is due to meet next Tuesday for its May cash rate decision.

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