Australia's inflation rate has fallen from its December peak, with annual price increases of 7 per cent for the year to March, down from 7.8 per cent.
Prices rose 1.4 per cent over the March quarter, which was marginally above average economist forecasts, but the smallest quarterly rise in more than a year, according to the Australian Bureau of Statistics (ABS).
The ABS said prices had continued to rise for most goods and services, but the scale of those increases had slowed.
Exceptions were seen in steep quarterly price jumps for medical services (+4.2 per cent), tertiary education (+9.7 per cent) plus gas and other household fuels (+14.3 per cent).
"Prices for medical and hospital services typically rise in the March quarter as GPs and other health service providers review their consultation fees, and the Medicare Safety Net is reset at the start of the calendar year," observed the bureau's head of price statistics Michelle Marquardt.
"This year some private health insurance premiums also increased in January, adding to the price rise for medical and hospital services.
"Tertiary education fees are also indexed at the start of the year. This quarter additional strength was seen in tertiary education as changes in student contribution bands and fees introduced in 2021 as part of the Jobs-ready Graduates Package continued to flow through to the index."
Gas prices rose sharply across the capital cities, although Melbourne had the strongest March quarter rise of 22.7 per cent.
"This quarter's rise was notable as prices increased in all eight capital cities, whereas typically only Melbourne's prices are reviewed in the March quarter," Ms Marquardt added.
Fruit and vegetables (+2.4 per cent) plus snacks and confectionary (+4.1 per cent) led overall food prices a further 1.6 per cent higher over the March quarter.
Domestic holiday travel and accommodation costs continued to rise (+4.7 per cent) over the final months of summer and early autumn, despite a small decline in airfares after recent large increases.
However, not everything went up in price over the past few months.
If you were out in the shops, chances are you found discounts for furniture (-4.6 per cent), household appliances (-3.8 per cent) and clothing (-3.2 per cent).
Services inflation gives RBA headaches
Those falling prices for goods were a major contributor to the drop in annual headline inflation, which is now lower than it was in December (7.8 per cent) and September (7.3 per cent), although new dwelling construction (+12.7 per cent), domestic travel (+25 per cent) and electricity (+15.5 per cent) all drove prices up over the year to March.
"Annual inflation for goods, of 7.6 per cent, was down from the 9.5 per cent recorded in December, due to price falls for goods such as furniture, household appliances and clothing in the March quarter, as well as automotive fuel prices easing in recent quarters," Ms Marquardt noted.
"However, annual inflation for services was 6.1 per cent, up from 5.5 per cent in the December quarter, and is the highest since 2001."
That will concern the Reserve Bank, as services inflation tends to be indicative of domestic price pressures, especially wages growth, and is often "stickier" — slower to come back down — than goods inflation.
Another thing that will concern the Reserve Bank, according to CBA's head of Australian economics Gareth Aird, is that almost all of the inflation over the past three months was domestically generated.
"Non tradables inflation rose by 1.9 per cent in the quarter to take the annual rate to 7.5 per cent," he noted.
"In contrast tradables (i.e. imported inflation) rose by just 0.3 per cent in the first quarter of 2023 and the annual rate dipped from 8.7 per cent to 6.1 per cent."
In other words, it is no longer supply bottlenecks and shortages of imported goods driving prices up, but domestic demand, growing costs such as wages, and rising profit margins in some industries.
Despite this, the Reserve Bank's preferred inflation measures that exclude the biggest price moves were also off their peaks, posting quarterly increases of 1.2 per cent, and annual rises of 6.6 per cent for the trimmed mean and 5.8 per cent for the weighted median.
Betashares chief economist David Bassanese said that decline in core inflation should give the RBA cause to keep the cash rate on hold again next week at 3.6 per cent.
"On balance, today's March quarter consumer price index (CPI) result provided reassuring evidence that inflation likely peaked late last year," he wrote in a note.
"There's a good chance the RBA won't need to raise interest rates again this year. Instead, I still see scope for a rate cut on or before Melbourne Cup as the economy slows — and, especially, if the currently red-hot US economy tips into recession."
Financial traders generally agree, with the market pricing suggesting a 90 per cent chance that rates will remain on hold next Tuesday, and only a 10 per cent chance of a rate hike.
Essentials now driving inflation
A major headache for households is that, while the cost of many goods is coming down, the cost of essential goods and services is still rising strongly.
"Prices on non-discretionary goods and services rose by 1.9 per cent in the March quarter, compared to an 0.6 per cent increase in the price of discretionary goods," Indeed's Asia-Pacific economist Callam Pickering said.
"Households typically struggle to reduce their consumption of non-discretionary goods."
But many are now being forced into doing just that.
Yarraville Community Centre in Melbourne's western suburbs is on the frontline of Australia's cost of living battle.
Demand for the centre's food relief program has increased as more people struggle with the cost of living.
Volunteers make 200 free meals a week, run regular food relief markets and have a permanent free pantry stocked with non-perishables outside the building.
"Demand has increased, and this has changed in the sense that now we're seeing more middle income people asking for food relief," Patricia Saca, interim CEO at Yarraville Community Centre, told The Business.
"It is the rising cost of living, particularly the rising cost of utilities. So people have come to a point where they need to make a decision about whether to pay their bills or to buy food, or whether to buy medicine or to buy food.
"So food now is part of discretionary income rather than a necessity."
Laura Sabini picks up free meals from the centre every fortnight for her neighbour.
Ms Sabini said her neighbour's budget is so tight, she cannot even afford the local council's subsidised Meals on Wheels.
"It's just increased so much that people can't afford to go shopping and buy food, fruit and vegetables, and just basic needs like bread," Ms Sabini said.
Ms Sabini is also watching what she spends and that sometimes means cutting back on kitchen staples like cheese and forgetting about overseas travel for a while.
"When you go shopping, when you see double the price for cheese you think no, I'm not going to buy that … so you end up just not buying it," she said.
"I'm not going out as much as I used to, I am staying at home more."
Treasurer Jim Chalmers welcomed the overall drop in inflation from its peaks, but acknowledged that cost-of-living pain would linger for many households.
"The worst of the inflationary pressures are behind us, but they will hang around higher than we'd like for longer than we'd like," Mr Chalmers told reporters at a press conference.
"Cost-of-living pressures are still coming at us from around the world and they are still being felt around the kitchen tables of this country. That's why the budget will contain cost-of-living relief, which prioritises the most vulnerable people in our community."
