CONSUMER prices rose by 0.5 per cent in March, revealing a build-up of inflationary pressures, a survey says.
The rise on the TD Securities - Melbourne Institute monthly inflation gauge followed an increase of 0.8 per cent in January and 0.1 per cent in February.
The annual inflation rate by this measure was 2.5 per cent, up from 1.9 per cent over the year to February.
The trimmed mean inflation gauge, which parallels one of the measures of underlying inflation used by the Reserve Bank, also rose by 2.5 per cent over the year to March.
Both were in the middle of the RBA's two to three per cent medium term inflation target.
Despite that, TD Securities senior strategist Annette Beacher warned that inflation was"again building up a head of steam'' after a pause in February.
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"Both imported and domestic inflation rose solidly this month, something we've not seen for nearly eighteen months,'' she said.
In its quarterly monetary policy statement in early March, the RBA said underlying inflation was around 3.25 per cent through 2009, down from just over 4.5 per cent in the year to September.
The RBA forecast underlying inflation would subside to 2.5 per cent by mid-2010 and stay at that pace until edging up to 2.75 per cent in the second half of 2011.
But this outlook is "somewhat optimistic, as Australia will be testing the speed limits of the economy sooner rather than later'', Ms Beacher said.
Whether the central bank would raise the cash rate next Tuesday to 4.25 per cent from 4.0 per cent was a close call, but a pause in interest rate rises in April would be consistent with the RBA's theme of gradual adjustment, she said.
"We lean towards a rapid fire May/June 50 basis point (half a percentage point) tightening to 4.5 per cent to send the signal that accommodative cash rates are no longer appropriate for the booming Australian economy,'' Ms Beacher said.
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