Australia CPI inflation data published today show headline price pressures moderated in the three months to March, broadly in line with monthly data published over the quarter and the expectations of officials at the Reserve Bank of Australia. The headline consumer price index rose 1.4 percent on the quarter after an increase of 1.9 percent in the three months to December with headline inflation slowing from a multi-decade high of 7.8 percent to 7.0 percent. This remains well above the RBA's target range of 2.0 percent to 3.0 percent.

Measures of core inflation, however, showed mixed results for underlying price pressures. The trimmed mean CPI advanced 1.2 percent on the quarter after rising 1.7 percent previously, with the year-over-year increase falling from a record-high 6.9 percent to 6.6 percent. The weighted median CPI rose 1.2 percent on the quarter after a previous increase of 1.6 percent, but its year-on-year increase was unchanged at 5.8 percent.

Lower headline inflation was largely driven by a smaller year-over-year in transport costs, which rose 4.3 percent on the year in the three months to March after an increase of 8.0 percent in the three months to December. This, in turn, reflects the base effect of a surge in fuel prices during the same period in 2022 in response to the Ukraine war.

Other categories also recorded smaller year-over-year increases in the three months to March, including food, clothing and footwear, recreation and culture, and housing. Some categories, however, recorded bigger increases, including health, education, and insurance and financial 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 relatively strong in the three months to March and that base effects were a significant 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.

Quarterly inflation is expected to slow to 1.3 percent in the first quarter from the fourth quarter's even more elevated 1.9 percent. On the year, the CPI is seen at 6.9 percent which would be down from 7.8 percent.

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.