Australia's latest inflation report for March is due from the ABS this morning (1130 AEST). The report is expected to show headline inflation rising to highs since 2023 above 4.5% on the back of the fuel price shock. While the Federal Government's decision to halve the fuel excise tax for 3 months from April 1 will provide some short-term relief, the RBA is widely expected to continue its hiking cycle with another 25bps increase to the cash rate next week.
March preview: Inflation to soar on fuel price shock
Today's data for March includes the monthly and quarterly CPI figures. Both data points are relevant for the RBA. The 2-3% inflation target is benchmarked against the monthly data, while the quarterly trimmed mean is used to gauge underlying inflation trends - a key factor in monetary policy decisions. The RBA's inflation forecasts from February are now long out of date, but for reference annual headline CPI was seen at 4.2% by mid-year and trimmed mean at 3.7%.
With that in mind, surging fuel prices are forecast to drive annual headline inflation (monthly series) up to 4.8% from 3.7%. Price monitoring by the ACCC reports that average unleaded fuel prices across the major capitals rose in the order of 50% between late February through March. As the chart below shows, fuel prices were actually falling ahead of the crisis. The quarterly trimmed mean is expected to print at 0.9%, with the annual pace lifting from 3.4% to 3.5%.
A recap: RBA hikes as inflation reaccelerates
The RBA hiked the cash rate by 25bps in February and March after inflation reaccelerated over the back half of last year, breaching the top of the target band. Headline inflation rose 0.6% in the December quarter and 3.6% over the year, up from 3.2% previously. Trimmed mean CPI was 0.9% in the quarter, lifting from 3% to 3.4% year-on-year. The uptick in inflation was broadly based across goods and services, with other factors such as electricity rebates unwinding also playing a role.
The monthly data have indicated that inflation remained elevated early in the new year, despite (as discussed above) fuel prices falling ahead of the conflict. Headline inflation printed at an annual pace of 3.8% in January and then 3.7% in February, while the trimmed mean held at 3.3%.
