The latest ABS consumer price index (CPI) delivered another upside surprise, accelerating 3.6% over the 12 months to April off the back of cost pressures from the goods sector. 

Market consensus pencilled in a 3.4% uplift. 

Despite accelerating for the second consecutive month, ABS head of prices statistics Michelle Marquardt noted that inflation “has been relatively stable over the past five months”.

"CPI inflation is often impacted by items with volatile price changes like automotive fuel, fruit and vegetables, and holiday travel,” Ms Marquardt said. 

However, excluding volatile items and holiday travel, core inflation also came in hot at 4.1%.  

For the RBA to reach the midpoint of its target range by end-2025 (revised following the Board’s meeting in May), the annual rate of trimmed mean inflation has to slow down by 0.3% to land on 3.8% in June 2025.  

And headline inflation has to decelerate a whole lot faster to reach the Treasury’s forecast of below 3% by December 2024 – a bullish outlook revealed just as potentially inflationary measures in the Federal Budget were announced. 

While the index provides a notable measure of domestic prices for the RBA Board’s upcoming monetary policy decision on 17-18 June, the April data are underweight services and non-tradeables. 

The still sticky services price inflation has been notoriously cited as the major reason the central bank’s rate-setting committee refrains from easing their tightening bias. 

In fact, the RBA Governor even went as far as saying, “If the services inflation really gets stuck and gets stuck at a level which is inconsistent with our target band, we will have to act”.

More service components will come in the May data, and the RBA typically places more weight on quarterly inflation figures. 

Housing and food costs drive inflation

Housing costs drove the jump in prices, up 4.9% over the 12 months to April. 

“Rents increased 7.5% for the year, reflecting a tight rental market and low vacancy rates across the country,” Ms Marquardt noted. 

Rent inflation recorded a 0.5% monthly uplift. But excluding the impact of the Commonwealth Rent Assistance, it would have risen to 0.7%. 

Electricity prices, up 4.2%, likewise contributed to the inflation. 

If rebates are unaccounted for, electricity prices would have risen 13.9% in the 12 months to April, according to the ABS. 

The introduction of the Energy Bill Relief Fund rebates from July 2023 has mostly offset electricity price rises from annual price reviews in July 2023 due to higher wholesale prices. 

Annual inflation for food and non-alcoholic beverages rose 3.8% in April, with all food categories except meat and seafood contributing to the annual rise. 

Transport prices (up 4.2%) also added inflationary pressures following a continued rise in automotive fuel.

“Fuel prices rose 2.2% in April, the third consecutive monthly rise, reflecting higher wholesale fuel prices,“ Ms Marquardt said. 

Clothing and footwear prices surged 2.4% year-on-year, following the increase in children’s clothing costs and the reversal of discounting that occurred late last year  

It’s important to note that prices measured in April are overweight on goods, and the May CPI will give a better read on how services inflation is tracking. 

“The key implication overall is that some inflation components are looking sticky, while goods are not helping further on disinflation,” NAB head of market economics Tapas Strickland said. 

RBA’s next move? Likely another rate hold

In light of today’s CPI print and yesterday's flat retail spending, all four major bank economists maintained their forecast that the Reserve Bank will keep the 4.35% cash rate steady until the first cut is delivered in November. 

“NAB since early 2024 has been of the view that the RBA would be on hold until late 2024, having pencilled in November for the first interest rate cut,” Mr Strickland reiterated. 

“In the event the labour market or broader capacity pressures do not loosen as much as we expect and inflation proves more persistent, we think the RBA’s preferred response would be holding for longer.”

ANZ senior economist Catherine Birch, meanwhile, acknowledged risks “remain tilted towards a later start”.

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