There’s no more excuse for the Reserve Bank to not cut interest rates in May or June after the Australian Bureau of Statistics announced an increase in the Consumer Price Index, indicating inflationary pressures were even more subdued than anticipated.

The CPI increased 0.1 per cent in the March quarter 2012, compared with no change in December quarter 2011.

The most significant price rises in the period were for pharmaceutical products (+14.1%), secondary education (+7.7%), automotive fuel (+2.5%), medical and hospital services (+2.1%), tertiary education (+4.7%) and rents (+1.0%). The most significant offsetting price falls were for fruit (–30.0%), international holiday travel and accommodation (–4.8%), furniture (–6.0%), audio, visual and computing equipment (–6.3%) and domestic holiday travel and accommodation (–2.0%).

According to the National Australia Bank (NAB), these March quarter results are below the RBA’s 2 to 3 per cent target, suggesting that in the current environment the RBA may no longer see inflation as a barrier to further rate cutes.

The soft March quarter CPI outcome is, however, consistent with NAB’s survey measure of retail price inflation – which has historically had a reasonably robust relationship with core CPI. NAB business surveys also suggest continuing weakness in retail price inflation, which is consistent with recent heavy discounting.

“Based on the current state of the economy, we expect the RBA to cut the cash rate by 25 bp at its interest rate meeting next week. While dependent on the degree of fiscal tightening implied by the Commonwealth Treasury’s May Budget and the softness in labour market data, we believe the RBA will lower the cash rate by a further 25 bp in June (previously unchanged),” NAB said in a statement.

“There is a chance that the RBA may delay until August, when there will be another inflation reading, if for example the labour market remained strong.”