Inflation has been contained in recent years, reflecting moderate growth in unit labor costs, the effects of a higher exchange rate and strong competition in the retail sector. The Consumer Price Index (CPI) increased by 2.4 per cent through the year to the March quarter 2005. Although petrol prices are expected to place some further upward pressure on consumer prices in the near term, inflation is expected to remain moderate, with the CPI forecast to grow by 2 and half per cent through the year to the June quarter 2006.
Unit labor costs are forecast to increase in 2004-05, reflecting a cyclical slowing in productivity growth and a slight increase in wage growth. While this will put some upward pressure on inflation, businesses are expected to look through some of the cyclical slowing in productivity growth in order to restructure instability in retail prices.
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