Reflecting the further unwinding of the mid 2006 increase in banana prices: this effect is estimated to have subtracted 0.5 percentage points from inflation in the quarter. However, a range of other items also contributed to the low outcome. Petrol prices made only a relatively small positive contribution to inflation in the quarter.
Tradables prices continue to grow at a substantially slower pace than non-tradables prices. Abstracting from food and petrol, tradables prices were unchanged in the March quarter and higher by 0.4 per cent over the year. The ongoing low rate of tradables inflation has reflected price falls for a range of manufactured goods – for example, clothing & footwear, household contents such as furniture, and audio, visual & computing equipment – that are mostly imported and for which world prices are being held down by the expansion of supply from China and other emerging markets. Tradables inflation has not been significantly affected by movements in the exchange rate in the past year or so. However, there was a noteworthy strengthening in the currency near the end of the March quarter and early in the June quarter: this would not have had a significant effect in the March quarter, but is likely to have an effect in coming quarters if the higher exchange rate is sustained.
Non-tradables prices rose by 0.9 per cent in the March quarter and by 3.5 per cent over the year. The quarterly increase partly reflected seasonal increases in prices for education and health-related expenditures, although there was also a pick-up in rents and house purchase costs. Rents increased by 1.4 per cent in the quarter and by 4.4 per cent over the year, the strongest increases seen since 1991. With ongoing indications of a tight rental market, it is likely that the rate of rental inflation will remain high for some time.