Inflation Surprise Rise

The Australian Bureau of Statistics (ABS) released the latest inflation data today, revealing a rebound in inflation in April. The monthly consumer price index (CPI) rose to 3.6% in the 12 months to April, outpacing the expected increase of 3.4%. This unexpected acceleration in inflation has raised concerns about the timing of any potential rate cuts, which could provide relief for households.

The increase in inflation comes amid a broader slowdown in household consumption. The hotter-than-expected inflation reading adds to concerns that price pressures and economic activity are re-accelerating. While this single data point won’t change the timing of if and when the Reserve Bank can start to lower interest rates, it is likely to stoke fears that the Reserve Bank of Australia (RBA) may need to deliver another rate hike, a possibility that Governor Michele Bullock has not ruled out.

The ABS’s monthly inflation indicator is more volatile than quarterly measures as it only provides a partial update of consumer price growth. April’s figures were heavily skewed towards goods, rather than more stubborn services prices. Despite this, economists believe it provides a reasonable picture of how prices are travelling month to month.

The most significant contributors to the April annual rise in prices were housing (+4.9%), food and non-alcoholic beverages (+3.8%), alcohol and tobacco (+6.5%), and transport (+4.2%). An underlying measure of inflation, known as “trimmed mean” inflation, also picked up slightly in April, from 4% to 4.1%.

Electricity prices rose 4.2% in the 12 months to April. However, they would have been much higher without government rebates. The ABS stated that the introduction of the Energy Bill Relief Fund rebates from July 2023 had mostly offset electricity price rises from annual price reviews in July 2023 due to higher wholesale prices. Excluding the rebates, electricity prices would have risen 13.9% in the 12 months to April 2024, according to Michelle Marquardt, ABS head of prices statistics.

Housing inflation rose by 4.9% in the year to April, with rents rising by 7.5% over the year as the rental market remains tight. Fruit and vegetables recorded their largest annual price rises in a year, increasing by 3.5%. Overall, food and non-alcoholic beverage inflation rose by 3.8%.

In conclusion, the recent inflation data suggests that the Australian economy is experiencing some inflationary pressures. Policymakers, including the RBA, will need to carefully monitor these developments and consider their implications for monetary policy. As we move forward, it will be interesting to see how the RBA and other policymakers respond to these inflationary pressures.