(Bloomberg) — Australia’s inflation came in faster than expected in April, suggesting price pressures remain stubbornly strong and bolstering the case for the Reserve Bank to keep interest rates at a 12-year high next month.
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The monthly consumer price indicator climbed 3.6% from a year earlier, exceeding economists’ estimate of 3.4%, government data showed Wednesday. The core measure, which strips out volatile items, held at 4.1%
OIS traders modestly boosted the chance for an RBA rate increase this year — seeing a 27% chance for a hike in September, versus less than 20% 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 stocks deepened losses, heading for a second day of declines.
“You can see the RBA remaining vigilant on the inflation risk going forward,” said Belinda Allen, a senior economist at Commonwealth Bank of Australia who highlighted volatile food prices as a key driver. “It’s also important to think about what’s happening in terms of activity data at the moment. There are signs the economy’s continuing to slow.”
Retail sales figures on Tuesday pointed to ongoing weakness in consumer spending while first-quarter gross domestic product data due next week is likely to show the economy opened 2024 on a softer note.
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.
What Bloomberg Economics Says…
“Australia’s surprisingly high inflation figure for April fits a narrative that says the easy part of the global disinflation trend has run its course. The latest result will keep the RBA on edge at its meeting on June 18, but is unlikely to spur a policy move — in either direction.”
— James McIntyre, economist.
— For the full note, click here
Economists at ANZ Bank said Wednesday’s data highlight the risk of a later start to the RBA’s easing cycle, while ING Groep N.V. now expects the central bank to only begin easing policy in 2025, from previously predicting cuts this year.
Robert Carnell, ING’s regional head of research, said his bank is “now only one bad inflation report from amending our forecasts to include some additional tightening.”
The RBA has held its cash rate at 4.35% 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 2-3% target, but has also signaled the bar for a further hike is high.
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:
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The most significant contributors were housing, up 4.9%, food and non-alcoholic beverages, 3.8% higher, and alcohol and tobacco, up 6.5%
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This is the second month in a row where annual inflation has had a small increase, said Michelle Marquardt, ABS head of prices statistics
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Electricity prices rose 4.2% 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
–With assistance from Tomoko Sato, Garfield Reynolds and Georgina McKay.
(Adds comments from economists)
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