Has inflation gone bananas?

The headline rate for the March quarter rose 1.

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6%.

The biggest contributors for the three months were vegetables (+16.0%), fruit (+14.5%), pharmaceuticals (+12.5%) and petrol (+8.8%)

Most of these were a direct consequence of the Queensland floods and Cyclone Yasi.

Infact, the Bureau of Statistics says banana prices are up 100% in the three months the March.

The tensions in Northern Africa and the Middle-East as reported in detail on SBS World News Australia, obviously influenced petrol prices.

As a result, the headline annual rate of inflation blew out to 3.3%. The Reserve Bank likes to keep CPI between 2-3%

Generally, higher inflation means higher interest rates.

But here’s the thing. The RBA already warned that it would look through these top line numbers because of these one-off events.

Instead it prefers the underlying rate of inflation that strips out large variables like food and petrol, which can often skew the inflation result.

For the quarter, the rate came in at +0.85% and for the year 2.25%, within the RBA’s band.

So, the RBA is not expected to fire on interest rates just yet. But it will be keeping a very close eye on inflation in the future.

Our economy is expected to speed up in the second half of the year, as commodity prices strengthen and the rebuilding efforts post- Queensland disasters add to GDP. Furthermore, wage price pressures are predicted to emerge, and that will add to inflation.

It’s then when we’ll start to see the RBA lift the lid on interest rates, with many economists expecting the first rate rise to come in August.

Incidentally, the CPI result saw the Australian dollar surge once again to post- float highs – approaching US$1.09.

Maybe it’s time for a banana smoothie on the beaches of Miami?