Inflation rises 0.5 percent in March quarter

Inflation has risen 0.5 percent in the March quarter 2017, according to the Australian Bureau of Statistics (ABS).

It follows a rise of 0.5 percent in the December quarter 2016.

All eyes will have been on the figures today as Treasurer Scott Morrison juggles the books for the May 9 budget.

The rise has been driven by a jump in the cost of medical and hospital services, a pick-up in fuel prices and new dwelling purchases by owner-occupiers.

Vegetable prices have also risen 13.1 percent through the year to March quarter 2017 with damage caused by Cyclone Debbie likely to continue to impact supply.

Financial markets expected the CPI to rise by around 0.6 percent for an annual rate of 2.3 percent, with the eventual figures slightly lower at 2.1 percent through the year.

Weak inflation is often interpreted as a sign of a soft economy.

The central bank aims to keep inflation within a band of two to three per cent over the course of the economic cycle.

But in the past four years, it's been forced to cut the cash rate four times to a record low of 1.5 per cent to try and give the economy a boost through lower lending rates.

As the CPI is used as a base for wage negotiations this has led to the weakest wages growth in at least 20 years, dragging down government income tax revenue.

However, it's unlikely the Reserve Bank will be looking to hike interest rates anytime soon with a jobless rate close to six per cent.

The more interest-rate sensitive measures of underlying inflation, which smooth out volatile price swings, are also unlikely to return to above two per cent just yet.