[SYDNEY] Australian consumer prices fell unexpectedly last quarter while key measures of core inflation slowed to the lowest on record, a disturbingly weak result that revived pressure for another cut in interest rates.
The local dollar dived a full US cent to US$0.7672 as the market revised up the probability of a rate cut at the Reserve Bank of Australia's (RBA) May 3 meeting to 48 per cent.
It had been down at just 12 per cent before the Australian Bureau of Statistics reported its headline consumer price index (CPI) fell 0.2 per cent in the first quarter, confounding forecasts of a 0.3 per cent increase.
Annual inflation slowed to 1.3 per cent, from 1.7 per cent, as tumbling international oil prices weighed on prices.
Key measures of underlying inflation rose by just 0.15 per cent on average in the first quarter, easily the lowest outcome since the series first began in 2002.
The annual pace slowed to 1.6 per cent, again the lowest on record and well under the RBA's long-term target band of 2 to 3 per cent.
The result would be a shock to the central bank which had projected core inflation would bottom around 2 per cent.
The central bank has said low inflation would allow room for a further cut in rates, though it also sounded unconvinced ever-easier policy was the right prescription for the economy.
Dragging inflation lower in the quarter was a 10 per cent dive in petrol and an 11 per cent drop in fruit prices, while the cost of international holiday travel and accommodation also declined.
That more than offset price rises in education, medical and hospital services and pharmaceutical products, many of which are set by government dictat rather than market forces.