A slowing rate of inflation during the March quarter will comfort the central bank as it contemplates more interest rate cuts to help revive a weakening economy, economists say.

The headline consumer price index (CPI), the key measure of inflation, is forecast at 0.5 per cent in the March quarter for an annual rate of 2.9 per cent, an AAP survey of 11 economists showed.

This compares with a headline rate of 3.7 per cent in the December quarter, which fell 0.3 per cent during the period because of an 18.2 per cent drop in automotive fuel prices.

The headline rate of inflation hit five per cent in the September quarter of 2008.

Despite the expected rate of annual inflation for the March quarter remaining at the top end of the Reserve Bank of Australia’s (RBA) target band of two to three per cent, more interest rate cuts are expected by the central bank in a bid to stimulate the economy.

Nab Capital senior economist, Spiros Papadopoulos, said the attention of the RBA has turned in the past year from rising prices and wages to stimulating the economy from a probable recession.

“It just illustrates how quickly the world has slowed,” Mr Papadopoulos said.

“Not only have central banks been cutting rates aggressively, but inflation has slowed significantly in response to the weakness in growth in all markets around the world.”

The Australian Bureau of Statistics will release the CPI data on Wednesday, April 22.

Macquarie Group associate economist Ben Dinte said petrol and food were the main contributors to inflation in the March quarter.

“We have seen petrol prices increase in the quarter quite strongly,” Mr Dinte said.

“We are also hearing food prices have been quite strong.”

Westpac Banking Group senior economist Anthony Thompson said inflation was not a worry currently for the central bank.

“Inflation is not really on the radar as far as the RBA’s policy outlook is concerned,” Mr Thompson said.

Inflation would fade rapidly for the rest of this year as the pressures from a 25 per cent depreciation in the Australian dollar during the last quarter of 2008 waned, Mr Thompson said.

“You won’t get further pressures from the import cost side.”

In setting monetary policy, the RBA generally focuses on underlying inflation, which removes volatile prices from CPI calculations.

Underlying inflation, based on the average of the trimmed mean and weighted CPI, increased by 0.75 per cent, for an annual pace of 4.35 per cent in the December quarter.

The underlying rate of inflation would fall to be within the RBA’s target range of two to three per cent in the September quarter, Mr Thompson predicted.

Between September and April, the RBA has cut the cash rate by 4.25 percentage points to three per cent, a 49-year low.

Mr Thompson forecasts the RBA will cut another one percentage point from the cash rate, taking it to two per cent by the end of 2009.

AAP