Australia inflation gauge slows to 8-mth low in March

SYDNEY, March 28 (Reuters) - A private gauge of Australian inflation slowed to an eight-month low in March helped by falls in fruit and vegetable and electronics, suggesting there was still plenty of room to cut interest rates if needed to support the economy.

The TD Securities-Melbourne Institute's measure of consumer prices edged up 0.2 percent in March, after a flat result in February. The annual pace of inflation slowed to 2.1 percent, from 2.4 percent.

That was the lowest annual reading in eight months and near the floor of the Reserve Bank of Australia's (RBA) long-term target band of 2 to 3 percent.

The central bank holds its next policy meeting on April 2 and is widely expected to keep its cash rate at 3 percent given signs past cuts are working to revive consumer demand, housing and asset prices.

Still, a lack of inflationary pressure gives it the scope to ease further if necessary.

The TD-MI gauge showed price falls for fruit and vegetables, household appliances, and audio, visual and computing equipment. That helped offset increases in alcohol and tobacco, clothing and petrol.

Excluding the volatile petrol, fruit and vegetables items, the inflation gauge rose 0.3 percent in March to be up just 1.8 percent for the year.

Likewise, the trimmed mean measure inched up 0.1 percent in the month while the annual pace slowed to 1.8 percent.

"We are of the view that the cash rate should remain at three percent, with the Bank's clear easing bias remaining on the table," said TD's head of Asia-Pacific Research, Annette Beacher.

"Inflationary pressures are clearly benign, and recent events in Europe are a reminder that offshore risks remain, even if the risks of outright financial market contagion are minimal."

She added that the gauge suggested that the official measure of consumer prices (CPI) could rise by around 0.5 percent in the first quarter of this year, putting annual inflation at 2.6 percent.

Underlying inflation, which the RBA focuses on, could rise by a very modest 0.45 percent in the quarter and 2.4 percent for the year, said Beacher.

(Reporting by Wayne Cole)

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Keywords: AUSTRALIA ECONOMY/INFLATION