By Greg Peel

By way of its April monetary policy statement the Reserve Bank of Australia was uncharacteristically candid in basically telling the market a rate cut was on the cards for May as long as the March quarter CPI result didn't surprise to the upside. The recently released minutes of that meeting were even more definitive.

No one was expecting an upside surprise, but there was plenty of surprise nevertheless on today's release of the CPI data ? downside surprise. Economist consensus had headline inflation rising 0.6% in the quarter so the 0.1% result was quite a shock. The miserly growth rate means Australia's annual headline inflation rate has plunged to 1.6% from 3.1% in the December quarter last year, and a recent peak of 3.6% in the June quarter last year.

What caught everyone out was the "banana effect", referring to volatility in fresh food prices which in Australia's case are often subject to droughts and flooding rains (and bush fires and cyclones). Food fell 2.1% in the quarter (bananas down 60%) to be 2.5% down on a year ago, when economists had expected only a 0.6% fall.