AUSTRALIA’S inflation came in faster than expected in April, suggesting price pressures remain stubbornly strong and bolstering the case for the Reserve Bank of Australia (RBA) to keep interest rates at a 12-year high next month.
The monthly consumer price indicator advanced 3.6 per cent from a year earlier, exceeding economists’ estimate of 3.4 per cent, data from the Australian Bureau of Statistics (ABS) showed on Wednesday (May 29). The core measure, which strips out volatile items, held at 4.1 per cent
OIS traders modestly boosted the chance for an RBA rate increase this year – seeing a 26 per cent chance for a hike in September, versus less than 20 per cent prior to the release. Rate cuts are off the table until the middle of 2025 at the earliest. Higher for longer inflation and higher for longer bond yields remain the order of the day.
The currency gained while Australian stocks deepened losses to fall 1 per cent, heading for a second day of losses.
From Washington to Wellington, consumer prices are proving tougher to return to target than markets had anticipated at the start of the year. Wednesday’s result comes after minutes of the RBA’s May meeting showed the board resumed discussing a rate increase.
The RBA has held its cash rate at 4.35 per cent since a surprise hike in November, pointing out that aggregate demand still exceeds the economy’s supply capacity. The central bank remains in data-dependent mode, with inflation still above the 2 to 3 per cent target, but has also signalled the bar for a further hike is high.
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Australia’s 13 rate increases between May 2022 and November 2023 are at the lower end of the global tightening scale. RBA governor Michele Bullock has expressed a willingness to be patient as she seeks to slow inflation without choking off economic growth. The bank’s forecasts show CPI will only return to target in 2025.
The CPI report also showed:
The most significant contributors were housing, up 4.9 per cent, food and non-alcoholic beverages, 3.8 per cent higher, and alcohol and tobacco, up 6.5 per cent.
This is the second month in a row where annual inflation has had a small increase, said Michelle Marquardt, ABS head of prices statistics.
Electricity prices rose 4.2 per cent in the 12 months to April. The introduction of the government’s Energy Bill Relief Fund rebates from July 2023 has mostly offset electricity price rises. BLOOMBERG
