The Reserve Bank’s plan to hold interest rates at record low levels for the next three years remains on track after a lower-than-expected increase in consumer prices through the March quarter quashed concerns of an imminent inflation surge.

The Australian Bureau of Statistics on Wednesday reported inflation lifted by a much lower-than-expected 0.6 per cent through the first three months of the year. It took annual inflation to 1.1 per cent, it’s highest level since the advent of the pandemic but still points to ongoing weakness in the economy.

Not even one of the largest quarterly rises in beef prices since the millennium drought – up by 3.7 per cent – and a sharp increase in oil prices could drive up inflation which has been short of the Reserve Bank’s 2-3 per cent target band since 2014.

Key measures of underlying inflation remain subdued. The trimmed mean rose by 0.3 per cent to be 1.1 per cent up over the year while the weighted median lifted by 0.4 per cent to be 1.3 per cent higher over the past 12 months.

The Reserve Bank has said it will not start lifting interest rates until inflation is sustainably within its target band, a position not expected until 2023 or 2024.

The lift in beef prices will be ongoing with the bureau noting graziers are rebuilding their herds in the wake of the drought that hit much of the eastern seaboard through the second half of the 2010s. But prices for fruit, down 1.6 per cent, and other cereals, down 2.7 per cent, fell due to the good season of the past six month.

Petrol prices jumped by 8.7 per cent as the global price of oil recovered from the lows it experienced during the pandemic. Prices lifted by 1.7 per cent in January, by 2.7 per ent in February and then by 7 per cent through March.

Despite the sharp increase in the quarter, petrol prices are up by a much more modest 0.4 per cent over the past year. Motor vehicle prices have also started to rise, lifting by 5.7 per cent over the quarter.

The June quarter will show a spike in inflation, after last June’s 1.9 per cent fall in consumer prices is stripped out of the annual result.

There was also a 1.5 per cent lift in medical and hospital service costs while pharmaceutical prices jumped by 5.3 per cent due to the annual resetting of the Medicare and Pharmaceutical Benefits Scheme safety nets.

There was also a 7.3 per cent jump in the price of accessories which the bureau said reflected “high consumer confidence and demand for discretionary items such as jewellery”.

Offsetting some of the increases, the price of furniture fell by 3 per cent while there were also falls in new dwelling prices.

There was also a 1.8 per cent drop in domestic holiday travel and accommodation, a sign that international tourist hotspots – starved of customers – are still cutting their prices to entice locals through their doors.

Asia-Pacific economist with job site Indeed, Callam Pickering, said the figures showed inflation was a “mile” short of the Reserve Bank’s target while noting non-tradeable goods were barely going up in price.

“Consumer prices of non-tradables rose by just 0.2 per cent in the March quarter and have increased by just 1.3 per cent over the past year. There is, quite simply, little in the way of domestic inflationary pressures,” he said.

Extracted in full from: Steaks and petrol push up consumer prices but COVID weighs on economy (