Australian inflation: above target but on trend

Australian consumer price inflation rose above target in the second quarter, to 3.1 per cent year-on-year from 2.9 per cent in March.

The Reserve Bank of Australia is unlikely to be too concerned. First, because the target of 2-3 per cent is explicitly intended to hold in the medium-term, rather than for every quarter. Second, because the duration of this above-target period is likely to be short: quarter-on-quarter inflation actually fell, from 0.9 to 0.6 per cent. So changes in the 2009 comparison quarter used (“base effects”) are affecting the yearly numbers. Third, the weighted median index, based on seasonally-adjusted prices, has just fallen below 3 per cent for the first time since its peak at 4.7 per cent in September 2008.