Confirmation of a poor set of Consumer Price Index figures for the March quarter won’t draw an interest rate rise from the Reserve Bank, but if we get oil around $US120 a barrel and a continuation of the slide in the US dollar, we could see a central bank reluctant to cut rates, even if the slowing economy starts to bite in coming months.

The CPI figures saw the Australian dollar climb around half a cent to 95.04 US cents just after 11.30am. That’s close to the highest level for 24 years.

The headline CPI rose 1.3% in the March quarter, for a rise of 4.2% over the year. That compared to a rise of 0.9% in the December quarter and 3.0% for all of 2007. Prices actually rose at a much faster rate in the second of 2007 after a slower than expected rise in the January and March quarters.

The figures were at the top end of most forecasts: the market consensus was for a 1% rise in the quarter and around 4% on an annual rate, but some forecasters (Goldman Sachs JBWere) were at the top end.

The low March quarter of last year has now dropped out of the comparison, which pushed the rate higher. The inflation rate will continue at well above 3% for this reason for the rest of this year, but it shouldn’t mean a rate rise.

But the chances of a rate cut have receded, especially with oil prices kicking higher and closing on $US120 a barrel overnight.

Excluding housing, financials services and insurance, the increase was 1.1% and 3.5%. (This measure jumped from the 0.7% quarterly and 2.2% annual rate in the December quarter, showing the extent of the price pressures apart from those introduced by the rising cost of financial services from the impact of higher interest rates).

The Australian Bureau of Statistics said “the most significant contributors to the increase this quarter were automotive fuel (+5.4%), pharmaceuticals (+13.1%), house purchase (+1.7%), electricity (+6.0%), rents (+2.0%) and other financial services (+2.0%), while the most significant offsetting decreases were for furniture (-3.6%), audio, visual and computing equipment (-5.8%), domestic holiday travel and accommodation (-1.4%) and accessories (-5.3%).”

The items to fall are all minor in the schemes of every day life.

Over the year to March transport rose 6.8%, food 5.7%, housing 5.7% and health was up 4.5% (and 4% in the quarter alone). The cost of education rose 5.21% in the quarter and by more than 4% in the year.

The Reserve Bank’s version (trimmed mean and weighted mean) rose 4.1% and 4.4% over the year and 1.2% and 1.3% in the quarter. Both showed a sharp rise from the December quarter.

The CPI numbers were expected on both a headline and a so-called core basis: the RBA and Governor Glenn Stevens had spent the last month softening us up for a big number and explaining the RBA’s reaction in advance.

But the big imponderables are oil prices and the US dollar’s continued slide, especially against the euro. Oil hit $US119.90 a barrel in New York overnight as the current futures contract expired and the US dollar hit a new low against the euro, breaching $US1.60 for the first time (it hit $US1.6019) before easing back under that level in Asia today.

The Canadian Central Bank cut its key interest rate 0.50% overnight to 3%, compared to the US Fed’s Federal Funds rate of 2.25% and the Australian cash rate of 7.25%. The reason; the expected “protracted” nature of the US economic slowdown.

Gold, copper, sugar and grain prices rose on the dollar’s slide.

If the Fed stops cutting rates at its meeting next week, or cuts and signals that it is pausing, that could help steady the US dollar and ease the upward pressure on oil prices.