Annualised inflation accelerated in April, according to the latest data from the Australian Bureau of Statistics (ABS), which reported a 0.5 percentage point increase to the monthly consumer price index (CPI) to 6.8 per cent.
The rise exceeded market expectations of a mild 0.1 percentage point increase to 6.4 per cent and represents the first monthly increase to annualised inflation over the 2023 calendar year.
The annual uptick (12 months to April 2023) has been attributed to higher fuel costs off the back of the halving of the fuel excise tax in April 2022 unwound in October last year.
Other contributors include higher housing costs (8.9 per cent), food and non-alcoholic beverages (7.9 per cent), transport (7.1 per cent), and recreation and culture (6.4 per cent).
According to HSBC chief economist Paul Bloxham, the inflation spike vindicates the Reserve Bank of Australia (RBA), which actioned a “surprise” 25 bps increase to the cash rate earlier this month.
“For the RBA, today’s figures are likely to provide some ex-post justification for its surprise 25 bp hike in May, which seemed to reflect a shift in the RBA’s view of the balance of risks around the inflation outlook — the risk that it remained too high for too long,” he said.
The April CPI boost could also support the case for “maintaining a tightening bias”.
“Our central case has the RBA on hold in June and the months that follow. Today’s figures add to the risk that another hike is delivered in coming months,” Mr Bloxham added.
ANZ chief economist Adelaide Timbrell said the group’s projections of one last 25 bps increase to the cash rate in August have been undermined by the CPI pickup.
“The risk around our forecast of a 4.1 per cent cash rate in August has been tilted toward earlier and/or more action from the RBA,” she said.
“Today’s CPI data add to that risk, with inflation, construction work done and credit all consistent with higher interest rates soon.”
But Commonwealth Bank economist Stephen Wu said while the April result was an “upside surprise”, further tightening was unlikely given annualised inflation is well past its peak of 8.4 per cent in December 2022.
“The bottom line is still that the annual rate of inflation continued to decelerate and is lower than where it was in the December quarter last year and the March quarter this year,” he said.
“Today’s data still suggests inflation has peaked.”
CBA called an end to the tightening cycle following the RBA May decision, which took the cash rate to 3.85 per cent and represented the eleventh hike in 12 months.
Nonetheless, markets were rattled by the monthly CPI print for May, with the S&P/ASX 200 losing 1.4 per cent of its value over the course of trading on Wednesday (31 May). All four major banks lost value, with their share prices falling as much as 2 per cent.
These movements also coincided with RBA governor Philip Lowe’s appearance before the Senate standing committee on economics.
During his evidence, governor Lowe said the central bank remains prepared to lift rates further to return inflation to its 2–3 per cent target range.
“We will do what’s necessary to make sure that inflation does not stay too high for too long, and we’re hoping we can tread this narrow path that I’ve been talking about — the economy still grows unemployment rises a bit, but not too much,” he said.
“But if it’s not possible to do that, we will do what’s necessary to make sure inflation comes back within the target range in the next few years.”
