Headline inflation picked up last month as energy prices jumped but the underlying price pressures eased, reducing the chances of another Reserve Bank rate rise in June.
Consumer prices advanced 6.8% in April, the Australian Bureau of Statistics said on Wednesday, a rate higher than the 6.4% pace economists had expected, and the 6.3% reading for March.
However, once volatile items were excluded, the underlying inflation rate that the RBA watches most closely eased to an annual clip of 6.5% in April from 6.9% in March.
“The halving of the fuel excise tax in April 2022, which was fully unwound in October 2022, is impacting the annual [headline] movement for April 2023,” Michelle Marquardt, the ABS’s head of prices statistics, said.
The Reserve Bank governor, Philip Lowe, told Senate estimates on Wednesday the central bank was determined to ensure inflation returned to its 2%-3% target range with mid-2025 the current trajectory.
Today’s inflation figure is the one of the last pieces of information the RBA will receive before it decides on interest rates next Tuesday.
David Bassanese, chief economist at bettershares, said “the recent disinflationary trend still seems intact”.
The RBA need not “reach for its gun just yet – especially given other signs of a cooling economy such as weaker building approvals and consumer spending,” Bassanese said.
On a monthly basis, the seasonally adjusted headline CPI figure also slowed to 0.3% in April, slowing from 0.5% and 0.6% in March and February, respectively, he said.
While it was too early to tell whether the trend to lower inflation would continue, the RBA “still has a little more time on its hands before deciding whether to lift interest rates again”, he said.
Investors trimmed the value of the Australian dollar after the CPI data release. The currency was recently buying 65.05 US cents, down from 65.15 US cents, implying markets on the margin reduced their estimates for interest rates.
As of yesterday, markets had assessed the likelihood of the bank hiking the cash rate to 4.1% as a 10% chance, although the RBA has surprised investors before, including its 25 basis-point rise earlier this month.
Housing continued to be among the biggest contributors to the monthly CPI numbers, rising 8.9% in April from a year earlier, although that rate was lower than the March pace of 9.5%. Food and nonalcoholic beverages were also up 7.9% in April from a year earlier, transport 7.1%, and recreation and culture rose 6.4%.
“Within the housing group, new dwelling prices rose 9.2%, which is the lowest annual growth since February 2022 as building material prices continue to ease,” Marquardt said.
“Rent prices rose further from an annual rise of 5.3% in March to 6.1% in April as the rental market remains tight,” she said.
Rents, though, have been increasing at an annual rate of at least 10%, CoreLogic and other data groups say. More of that increase is likely to be picked up in the ABS data in coming months.
Automotive fuel was particularly volatile last month in part because of the base effect of what was happening a year earlier. The CPI fuel gauge surged 9.5% from a year earlier, reversing the 8.2% decline in March. For April alone, the rise was 2.9%.
The Morrison government’s last budget halved the fuel excise, lopping off 22 cents a litre. That triggered a 13.8% fall in fuel prices in April 2022, amplifying the impact of last month’s increase because of the one-off reduction to the comparison level.
Lately, retail fuel prices are actually lower, at 175.6 cents a litre on average as of 28 May, compared with 186.8 cents at the end of April, the Australian Institute of Petroleum said.
That drop would suggest automotive fuel might be a clear down arrow come the release of May CPI numbers in a month’s time.
Fuel prices have lately been tilting up in part because of higher production costs but also retailer margins widening too. (Source: AIP) pic.twitter.com/EWTkGukAAn
— @phannam@mastodon.green (@p_hannam) May 31, 2023
