"The drop in the ABS's monthly CPI indicator is encouraging. The lower annual rate of 5.6 per cent suggests that cost pressures on households and businesses are back on a path consistent with the return of inflation to the 2-3% inflation target," Innes Willox, Chief Executive of the national employer association Ai Group said today.

"While encouraging for both households and businesses and bearing in mind that the monthly ABS excludes some items, we are not there yet. Sticking on the path to target inflation will require continued restraint in price setting and wage negotiations by businesses, governments and employees.

"Businesses can take some comfort that this data may ease the pressure on the RBA to raise interest rates further. The data will encourage investment and lift expectations for an easing of the downturn in consumer spending.

"Nevertheless, unless price and wage restraint continues, there will be a greater likelihood that more interest rate hikes will be required to further slow the economy.

"With GDP growth of just 0.2 percent in the March quarter, there is very little scope for further slowing without tipping the economy into contraction," Mr Willox said.

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