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Carbon tax repeal eases consumer price rises

Official figures show consumer prices increased by 0.5 per cent in the September quarter, with a carbon tax repeal related fall in energy costs offsetting other rises.

While the Bureau of Statistics noted in its release that it was not possible to quantify the impact of removing the carbon price, the main declines in the quarter were for electricity (-5.1 per cent) and automotive fuel (-2.5 per cent).

Fuel price falls were mainly a factor of global oil prices and exchange rates, but the electricity price fall was a direct result of the carbon tax being removed from July 1.

It is the first quarter since 1999 that electricity prices have fallen in the ABS index.

However, the 5.1 per cent fall in energy prices did not match the 15.3 per cent increase between the June and September quarters in 2012 when the carbon pricing scheme was first introduced, with non-tax factors at play in both price shifts.

The September quarter's fall in energy costs was also more than offset by a 14.7 per cent surge in fruit prices, a 1.1 per cent rise in the cost of buying new dwellings, and a 6.3 per cent seasonal jump in property rates and charges as increases took effect on July 1.

While fuelling up your car was cheaper in the September quarter, the ABS reveals that motor vehicle services rose in cost by 5.8 per cent.

Westpac senior economist Justin Smirk told ABC News Online that the removal of the carbon tax lowered prices about as much as expected, although maybe not in the electricity sector.

He added that the most interesting price falls were those in clothing, and price weakness for other discretionary consumer and household goods, when a decline in the Australian dollar would normally be expected to make imported goods more expensive.

"That suggests the consumer side [retailers] is lacking pricing power [because of] the introduction of greater competition, through not just the internet but new competitors playing in the market," he said.

"Not so much the removal of the carbon tax, but the underlying soft consumer discretionary demand is perhaps the one [thing] that's putting downward pressure on prices."

Data to keep RBA sidelined

Overall, consumer prices rose 0.5 per cent in the quarter and 2.3 per cent for the year to the end of September, down from the annual inflation rate of 3 per cent recorded in the June reading.

Economist forecasts had centred on a quarterly rise of 0.4 per cent leading to an annual inflation rate of 2.3 per cent, according to a poll by Bloomberg.

Accordingly, the data had minimal impact on the Australian dollar as it was close to forecasts.

The key trimmed mean and weighted median figures - watched by the Reserve Bank because they remove the most volatile price movements - came in at 2.5 and 2.6 per cent respectively.

That was a key factor restraining currency market reaction, as both are in the middle of the RBA's 2-3 per cent inflation target range meaning that the bank's preference to sit tight at a 2.5 per cent official cash rate is still justified.

Justin Smirk said weak consumer retail demand is being offset by surging housing demand, which pushed the cost of buying a newly built dwelling up 1.1 per cent in the quarter, meaning the Reserve Bank is likely to stay on hold for quite a while longer, despite already keeping the official rate at 2.5 per cent for more than a year.

"You have got that strong housing story, which the CPI again is confirming, so the ability for the RBA to cut rates in this environment with relatively strong housing markets is very limited," he explained.

"So it's more of a rate on hold story."