The TD Securities-Melbourne Institute monthly inflation gauge was unchanged in April, following a 0.1% decline in March.
Rising prices for healthcare and holiday travel countered easing prices on rent and transportation, last month, bringing in the flat result and raising fears Australia may face a deflation threat.
''Inflation is all but dead, even allowing for what was clearly a temporary exchange rate induced blip in prices in January and February,'' said TD Securities senior strategist Annette Beacher in a statement.
The year-on-year inflation figure gained 2.1% in April, recording the lowest annual increase since May 2005, ''and now testing the lower end of the Reserve Bank of Australia's target range for inflation,'' the TD Securities report said. The RBA aims to keep headline inflation between 2% and 3% as a matter of policy.
''The recession is killing inflation and now that the Australian dollar has stabilised, Australia is confronting a greater threat of deflation than any inflation risks."
The spectre of deflation has emerged as a worry for central banks around the world, while they grapple with asset drops linked to the global financial crisis.
Last month, fuel prices edged up 1.4% but were still about 18% lower than a year ago, the report said. The price of rent continued a decline it started in March, falling 2% in April.
Ms Beacher said "there has been a migration out of rental accommodation and into home ownership, especially for first home buyers" in the month, which is dampaning rent prices while providing support for home prices.
"As price movements in rents appear to lead overall price pressures, we expect even further rapid inflation deceleration in the months ahead," Ms Beacher said.
''On economic grounds, there is nothing standing in the way of the RBA Board cutting interest rates at its meeting tomorrow," she said. Analysts and markets, however, foresee little chance of the RBA cutting the interest rate from its 49-year low of 3%.
"Whatever the decision tomorrow, there seems little doubt that rates are on track to get to 2% in the second half of 2009," she said. "With inflation dead and buried, the only issues are the path to which rates get to that level and whether there is a case for rate cuts to below 2 % as the recession deepens.''
czappone@fairfax.com.au
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