CPI increase sparks interest rate rise fears

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The Consumer Price Index (CPI) saw a sharp rise in the March quarter, according to recently released figures by the ABS, sparking fears that the Reserve Bank will increase interest rates to quell inflation.

The quarterly rise of 1.6% was a big increase on the December 2010 quarter figure of 0.4%, and represented the largest quarterly CPI rise since June 2006.

January’s wild weather, which decimated crops in flood and cyclone damaged areas, played its part in pushing up fruit prices by 14.5% and vegetable prices by 16%.

Other significant price rises during the March quarter included fuel (8.8%) and deposit and loan facilities (4.6%).

The CPI for the housing group rose by 1.3% over the quarter, which was a big increase on the December quarter figure of 0.6%.

The Real Estate Institute of Australia (REIA) however was quick to point out that the annual increase in CPI for the housing group, at 4.8%, is still at its lowest since theSeptember quarter of 2007.

Contributing to this 4.8% rise were substantialannual increases in the price of electricity (11.7%), water andsewerage (12.8%), and property rates and charges (6.2%).

The weighted average for rents across all capital cities rose by 4.5% over the year, and the cost of purchasing a house increased by 2.6% over the same period.

“The Reserve Bankof Australia (RBA) consumer prices measures of weighted median and trimmed median are 2.2 percent and 2.3 per cent respectively for the year – well within their target zone of 2-3 per cent,” saidREIA president David Airey.

“Despite the March quarter CPI being the highest since the June quarter 2006, inflation is undercontrol, with a slowdown in the annual rate of increase on the two RBA measures over the lastyear.”

He added that the RBA should take into account the big jump in the cost of fruit and vegetables, which should be seen as one-off occurrences following this year’s flood and cyclone damage.

“The message for the RBA is clear; rates do not need to be increased next week. Increasing rateswill only cause greater mortgage stress for home owners and discourage buyers.”

The RBA’s next interest rate announcement is scheduled for 3rd May.

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