Cost pressures again were contained in the June quarter, with core inflation falling to the lowest level in 14 years on an annual basis, according to today’s ABS CPI release.

Headline consumer price inflation rose 0.5% in the June quarter, faster than the 0.1% rate in the March quarter, but was around what forecasters had been expecting (0.6%) and gave an annual rate of 1.2%, (against 1.6% for the March quarter) the lowest since June 1998.

It follows the release of the Produce Price data on Monday, which showed weak cost growth in business prices in the quarter, with the biggest impetus coming from the slide in the dollar, which has now reversed itself. The dollar was weak this morning ahead of the CPI release because of the continuing fears about Europe; the CPI data had little impact.

The Reserve Bank’s preferred measures of core inflation, the Trimmed Mean and the Weighted Median produced an average annual rise of 1.95%, just under the bottom of the central bank’s target inflation range of 2% to 3% over time. On a quarterly basis, the Trimmed Mean rose 0.5%, up from the 0.4% (revised) in the March quarter. The Weighted Median rose 0.7%, up from 0.4%.

The annual number benefited from the second cyclone-induced price spike in 2011 dropping out, replaced with a much more moderate June 2012 quarter, while the deflationary fruit and veg prices from late in 2011 remain in the mix.

The most significant price rises this time around were for medical and hospital services (+2.8%), rents (+1.1%), vegetables (+5.2%) and furniture (+4.5%). The most significant offsetting price falls were for domestic holiday travel and accommodation (-4.0%), audio, visual and computing equipment (-3.8%) and cakes and biscuits (-2.8% – they’ve been falling for a while). Petrol was also down, but that’s unlikely to remain the case into the current quarter.

There’s no point speculating about what all this means for interest rates. The lessening in inflationary pressures for the time being has already been taken into account by the Reserve Bank board. The only way we will get a rate cut at the August 7 board meeting is if the eurozone crisis further deteriorates — which may well happen, given recent events in Spain and concerns about Italy. The same goes for the next couple of RBA meetings beyond that.

In the minutes of its July board meeting, the RBA said:

“Indications were that inflationary pressures overall remained contained, notwithstanding the evidence of somewhat stronger economic growth over the past few quarters. In part, this was likely to reflect the still high level of the exchange rate and a softening in global prices, in particular for oil and other commodities. The weak conditions in parts of the economy for most of the past year — such as retailing and housing — also appeared to have played a role.”

In other words, there’s no need to cut rates, especially as the same minutes observed that “interest rates to be a little below average given evidence of slower global growth and the low rate of inflation in Australia”.

The next CPI result, in three months, will take on great political significance given the start of the carbon price. The ABS said today it “will not be able to quantify the impact of carbon pricing, compensation or other government incentives and will not be producing estimates of price change exclusive of the carbon price or measuring the impact of the carbon price. Any changes in the prices charged by companies for their outputs, paid by companies for their inputs or paid by consumers, will be reflected in the suite of price indexes compiled and published by the ABS.”

That is, don’t expect the ABS to disaggregate the CPI impact of the carbon price from other factors.

Treasury has estimated the impact will be 0.7% on the CPI over the next year. The current quarter will see the impact of the rise in utility costs (such as power, water and gas), some of which have been quite large. But otherwise, Australia is in a sweet spot on inflation at the moment. Not a bad time to introduce a new tax at all.