Australia's monthly CPI inflation indicator has surprised on the upside of expectations rising to 3.6% on a 12-month basis in April (vs 3.4% forecast) from 3.5% in March. The Australian dollar lifted before unwinding the move but a spike in the benchmark 3-year bond yield has held up post the release. Although consistent with RBA easing prospects in 2024 being priced out, construction activity data (also released today) provided another sign that next week's National Accounts will report a weak economic growth outcome in Q1, a factor that could see rate cuts being restored into the profile.
Headline CPI rose by 0.1ppt for the second month in succession printing at 3.6% in April, its highest since last November (4.3%). Broadly speaking, today's report suggests that the disinflationary process lost momentum over recent months, not unlike what has been seen in the US. This was reflected in the 3-month change in the CPI (shown in the grey bars in the chart above) lifting to 1.6% in April, similar to the momentum seen in Q3 last year. Meanwhile, the gauges of underlying inflation were either steady or up slightly - the key trimmed mean measure a case in the latter category firming from 4% to 4.1%.
Services prices - the component of inflation being watched most closely by the RBA - saw a small uptick to 4%yr from 3.9%, while goods prices were unchanged at 3.3%yr. Interestingly, however, the data suggests goods prices have been rising at a faster pace than services in recent months; the 3-month change in goods prices was 2.1% to April compared to 1.1% for services prices. The other point to highlight is that goods disinflation has been much more pronounced overseas than has been the case in Australia.
Notable increases in goods prices in April came through in fruit and vegetables (from -1.2% to 3.5%yr) and clothing and footwear (0.3% to 2.4%yr). Despite fuel prices easing from 8.1% to 7.4%yr in April, this has been a strong contributor to the uplift in the momentum of inflation in early 2024 - as have electricity prices (4.2%yr in April) with government rebates rolling off. But the new rebate schemes that have been announced by governments at the federal and state levels will be deducting from the measured inflation rate through the back half of the year.
