Monthly CPI data show that headline inflation fell to 6.3 percent in March from 6.8 percent in February, below the consensus forecast of 6.6 percent. This remains well above the Reserve Bank of Australia's target range of 2.0 percent to 3.0 percent, but inflation has now declined for three consecutive months. This is consistent with the RBA's assessment that inflation peaked in late 2022 and has started to moderate in response to aggressive policy tightening put in place since last May. This monthly indicator measures the year-over-year change in the CPI index compared with the same month twelve months earlier.

Today's monthly data, however, do not show a similar moderation in underlying price pressures in March, with the measure excluding volatile items rising slightly to 6.9 percent from 6.8 percent in February. This combination of lower headline inflation but slightly higher underlying inflation largely reflects fuel prices, which fell 8.2 percent on the year in March after advancing 5.6 percent in February. This, in turn, reflects the base effect of a surge in fuel prices in March 2022 in response to the Ukraine war.

Other categories also recorded smaller year-over-year increases in March, including clothing and footwear, recreation and culture, and housing. Some categories, however, recorded bigger increases, including food, alcohol and tobacco, and furnishings, household equipment and services.

The RBA left rates on hold at its most recent meeting at the start of the month, with the minutes showing that officials judge that monetary policy has already become"restrictive" due to previous rate hikes. Officials also noted that upcoming data, including today's inflation data, would provide them with crucial information to update their forecasts in May and to provide more information about the economic outlook.

Today's data, however, suggest that underlying price pressures remained strong in March and that base effects were a major factor driving the fall in headline inflation. This suggests that additional policy tightening remains possible in coming months, with officials noting that their decision to leave rates on hold at this month's meeting did not indicate that further rate hikes would not be considered. The RBA's next meeting will be held early next week, with updated forecasts to be published a few days later.

Consensus for consumer prices in March sees slight easing to a year-over-year 6.6 percent versus 6.8 percent in February which was down from 7.4 percent in January and less severe than expected.

The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by households for a fixed basket of goods and services. In Australia, the CPI measures the changes in the price of a fixed basket of goods and services, acquired by household consumers who are residents in the eight State/Territory capital cities. (Darwin, Perth, Sydney, Melbourne, Hobart, Brisbane, Canberra and Adelaide).

Data are released quarterly and, since 2022, monthly. Quarterly inflation data measure the year-over-year change in the index relative to the same quarter twelve months previously. Monthly inflation data measure the year-over-year change in the index relative to the same month twelve months previously.

The consumer price index is the most widely followed indicator of inflation. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. In countries such as Australia, where monetary policy decisions rest on the central bank's inflation target, the rate of inflation directly affects all interest rates charged to business and the consumer.

Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets - and your investments. Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.

By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.

For monetary policy, the Reserve Bank of Australia generally follows the annual change in the consumer price index. It has an inflation target of 2 percent to 3 percent. The RBA also has two preferred core or analytical measures - the weighted and trimmed means. The trimmed mean is a method of averaging that removes a small percentage of the largest and smallest values before calculating the mean. After removing the specified observations, the trimmed mean is found using an arithmetic averaging formula. The weighted mean excludes certain items from the CPI basket (the exclusion approach). Typically, the excluded items are those that are volatile and/or display pronounced seasonal patterns, and those that are subject to administrative price setting.