Loading article...
Australia's headline inflation falls to 4.2 percent in April but underlying measure edges higher to 3.4 percent
Australian inflation fell more than expected to 4.2 percent in April, helped by the fuel excise cut. However, the trimmed mean measure the RBA watches closely edged up to 3.4 percent, signalling persistent underlying price pressures. Analysts expect a hawkish hold at the June meeting.
Australian headline inflation fell more than expected in April, dropping to 4.2 percent in the 12 months to April from 4.6 percent in March. The moderation was significantly better than the median market expectation, with Treasurer Jim Chalmers describing it as a very welcome development while acknowledging that inflation remains too high in the economy.
The fuel excise cut introduced on April 1st was a significant driver of the decline, with automotive fuel falling 7 percent in April after rising 32.8 percent in March. Treasury analysis indicates the excise cut reduced headline inflation by around half a percentage point. However, the moderation was not solely due to fuel, with welcome declines also recorded in food and rents.
The closely watched trimmed mean measure, which strips out volatile items to reveal underlying inflation trends, edged up slightly to 3.4 percent from 3.3 percent, remaining well above the Reserve Bank's 2 to 3 percent target range. This figure is of particular concern to the RBA, which focuses on underlying inflation rather than headline numbers when making policy decisions.
Economists noted that while the headline softening was encouraging, businesses are already pricing higher fuel and transport costs into their supply chains, suggesting the flow-through effects of elevated energy prices may still be working their way through the economy. Business sentiment data indicates growing wariness of these increasing costs among firms.
The consensus among market analysts is that the Reserve Bank will likely deliver a hawkish hold at its June meeting, maintaining the current cash rate while preserving a clear tightening bias in its communications. However, further interest rate increases later in the year have not been ruled out, particularly if underlying inflation continues to trend above the target range. The Treasurer noted that while inflation was falling in Australia, it was rising in most major advanced economies including Canada, the Eurozone and the United States.