Login
iscover
The RBA’s hand may be forced towards another hike due to the latest monthly CPI print.
The monthly Consumer Price Indicator (CPI) rose 3.6 per cent in the 12 months to April, the latest data from the Australian Bureau of Statistics has revealed.
The rise in April represented an increase on the 3.5 per cent rise in March, with the most significant contributors being housing (4.9 per cent), food and non-alcohol beverages (3.8 per cent), alcohol and tobacco (6.5 per cent), and transport (4.2 per cent).
ABS head of prices statistics Michelle Marquardt stated while inflation has held relatively stable over the past five months, the April CPI print marked the second consecutive month of a small increase in annual inflation.
“CPI inflation is often impacted by items with volatile price changes like Automotive fuel, Fruit and vegetables, and Holiday travel. It can be helpful to exclude these items from the headline CPI to provide a view of underlying inflation,” Marquardt said.
“When excluding these volatile items from the monthly CPI indicator, the annual rise to April was steady at 4.1 per cent. Annual inflation excluding volatile items remains higher than for the monthly CPI indicator.”
Judo Bank’s chief economic adviser Warren Hogan said that these results will “test the Reserve Bank of Australia’s (RBA’s) patience”.
“Inflation is not falling back to target with signs that inflation’s underlying ‘pulse’ might be picking up in 2024,” Hogan said.
“The RBA was very close to hiking the rate earlier this month. This number could tip them over to raising rates at their next meeting on 18 June.
“The National accounts data for Q1 and the May employment numbers will be released before the next RBA board meeting. These results will be critical. It increasingly looks like the RBA will need to see new information in the data to convince them to remain patient on rates.
“If unemployment dips back to 4 per cent or lower in May, the RBA will find it hard to keep rates at 4.35 per cent.”
Hogan suggested that the RBA cash rate “will need to be around 5 per cent” in line with other similar economies’ interest rates for inflation to return back to 2.5 per cent.
However, ANZ economists Adam Boyton and Catherine Birch remained steadfast in their November cash rate cut forecast regardless of the slight increase in inflation this month, but risks “remain tilted towards a later start”.
“The April data are underweight services and non-tradables, so we will get a better gauge on domestic price pressures, and the implications for the policy outlook, in the May data,” they said.
CreditorWatch’s chief economist Anneke Thompson said that despite the flat monthly inflation result, it is still “unlikely that the RBA will find cause to increase the cash rate” due to price rises for traceable and discretionary goods moderating “dramatically” from their peaks.
“What it does mean, however, is that the cash rate will be stuck at this peak level until the RBA gets a good indication that services inflation is falling. Given population growth impacts are still to be worked through, this is unlikely to happen until early 2025,” Thompson said.
“The fight against inflation is still far from over, with the last stubborn categories – housing, fuel, electricity, health, education and financial and insurance services – proving difficult to get under pricing control.
“Record high population growth is likely a contributing factor here, and the hope from here is that moderating incoming overseas migration helps reduce price increases on these essential services.”
