Inflation read for April comes in hotter than forecast but holds within RBA's comfort zone

West Australian

5 days ago

The higher cost of food, housing and recreation has pushed inflation slightly higher, defying predictions from economists of a fall deeper into the Reserve Bank's comfort zone.
The monthly consumer price index reading from the Australian Bureau of Statistics on Wednesday showed the year-on-year increase remained steady in April at 2.4 per cent — where it has sat for the past three months.
The biggest contributors to the annual movement were food and non-alcoholic beverages up 3.1 per cent), housing (up 2.2 per cent), and recreation and culture ( up 3.6 per cent).
The annual trimmed mean for April — which strips out price volatility — ticked up from 2.7 per cent to 2.8 per cent.
ABS head of prices statistics Michelle Marquardt said that measure had remained relatively stable for the past five months.
'The CPI excluding volatile items and holiday travel measure rose 2.8 per cent in the 12 months to April, compared to a 2.6 per cent rise in the 12 months to March,' she said.
Westpac chief economist Luci Ellis had expected the inflation rate to fall through the floor of the central bank's 2 to 3 per cent target range to 1.9 per cent.
Westpac's prediction was on the lower end of market estimates, with the consensus forecast for annual CPI to come in around 2.3 per cent.
That's was the figure from AMP economists, while JP Morgan economists Ben Jarman, Tom Kennedy and Jack Stinson had expected a reading of 2 per cent, which would have been the softest inflation outcome since March 2021.
A former RBA chief economist, Ms Ellis had forecast prices would have risen at 0.3 per cent over the month, with disinflation continuing to show through in goods such as clothing and footwear, dwelling maintenance and furniture.
The RBA sets a minimum target for inflation because if prices grow too slowly, it could cause consumers to delay purchases. Businesses could respond to lower spending and higher real wage bills by laying off workers, resulting in a negative spiral of demand and prices.
Reserve Bank governor Michele Bullock won't be too concerned by the measure undershooting. The bank takes greater stock in the less volatile quarterly trimmed mean, which it predicts to stay around the midpoint of its target range for the foreseeable future.
Ms Bullock retired another analogy — that of the 'narrow path' the bank has had to walk — last week after the board made a second cut to the official interest rate.
Her focus turns to combating uncertainty caused by US President Donald Trump's tariffs, with the RBA expecting the trade war to have a disinflationary impact on Australia, Ms Ellis said.
The board will have to wait for the second and third monthly readings of the quarter to get data on services inflation, which will show if low unemployment is flowing through to higher labour costs for businesses.
'One area that the RBA had previously pointed to as a reason for not being confident that inflation can be sustained at current levels is the tightness of the labour market,' Ms Ellis said.
'While it still highlighted indicators that suggested remaining tightness, the forecasts for unemployment have been lifted slightly, while those for employment and wages growth have been reduced slightly.'