Australia: Inflation ticks up to five-month high in April
Inflation rose to 3.6% in April, up from March’s 3.5%. April’s reading was the highest since November 2023 and surprised markets on the upside. Looking at the details of the release, price pressures for clothing and footwear surged in the month, while food and non-alcoholic beverages inflation also accelerated. In contrast, prices for housing and transport rose at a weaker pace. Meanwhile, inflation excluding volatile items and holiday travel was stable at March’s 4.1% in April.
Additionally, the trend pointed down, with annual average inflation falling to 4.4% in April (March: 4.7%). April’s reading was the lowest since June 2022.
Finally, consumer prices increased 0.24% over the previous month in April, slowing down significantly from March’s 0.49% increase.
Our Consensus is for price pressures to recede from current levels on average by year-end and return to the Central Bank’s 2.0–3.0% target range in H1 2025. Inflation is forecast to average below last year’s level in 2024, driven down by softer activity growth as the effect of past monetary policy tightening filters through the economy. A stronger-than-previously-expected harvest will further contain food price pressures. Commodity price spikes and extreme weather pose upside risks.
ING’s Robert Carnell said:
“This was not the inflation report the Reserve Bank of Australia (RBA) would have wanted to see. Was there an element of wishful thinking in the consensus forecast of inflation moderating to 3.4% YoY from 3.5% in March? If so, they will have been disappointed to see inflation not only not falling but rising to 3.6% YoY. […] Having said that a bad inflation result would cause us to chop out the remaining rate cut we had pencilled into our forecast for 2024, we will keep to our word. What we do for 2025 remains an open question. For now, we will maintain the 50bp of easing we had been expecting. But we would be dishonest if we did not consider that the risks have shifted to the possibility of some further RBA tightening.”
Nomura’s Andrew Ticehurst and David Seif commented:
“We would not overplay the recent above-consensus April CPI indicator print. We note that this indicator can be volatile from month to month, and does not capture the full CPI basket. We think the RBA will continue to balance its full employment versus inflation objectives, and we still think the probability of another RBA rate hike is quite low.”