Australia's latest inflation report was better than expected, due largely to a 7% fall in fuel prices after the federal government halved the excise tax from April 1. Headline CPI rose 0.4% in April - well down from March's 1% surge - slowing the annual pace from 4.6% to 4.2%, below market forecasts for 4.4%. The less volatile trimmed mean measure was little changed increasing by 0.3% in April and 3.3% over the year, indicating that inflationary pressures remain on the high side of the RBA's target band. Markets continue to price one further rate hike from the RBA this year, but the move is widely expected to be delayed after the unemployment rate unexpectedly hit a 4-year high in April.
Monthly inflation was 0.4% in April, well down from March (1%) after the Middle East conflict saw fuel prices surge by almost 33%. The halving of the federal excise tax cut, in effect for 3 months from April 1, had an immediate impact as fuel prices fell by 7%, directedly deducting 0.3ppt from monthly inflation. But that only moderately offset the rise in March, leaving fuel prices 23.5% higher than before the Middle East conflict escalated. The more detailed data reported falls of between 9-10% in the month for regular and premium fuel to $2.06 and $2.28 per litre respectively; however, diesel continued to rise, up 14% to $2.92 per litre.
While fuel declined sharply (shown under the transport category in the green bars in the chart below), several categories continued to push up on inflation. Recreation and culture (2.6%m/m) rose as Easter and school holiday-related demand pushed up prices for domestic travel. Private health insurance premiums, which reset in Australia on April 1 every year, surged by their most in years, reflected in the health group notching a 4% increase. Meanwhile, clothing and footwear prices rose 3.9% to also make a notable boost to inflation.
Trimmed mean inflation, the key gauge for the RBA in assessing broader inflationary trends, rose 0.3% in April and lifted from 3.3% to 3.4% over the year. This measure rose above the 2-3% target band over the back half of last year, leading to the RBA responding with three consecutive rate hikes in 2026. That reverses the three rate cuts delivered in 2025 and leaves the cash rate 'somewhat restrictive' according to the RBA's latest communications. There was also some recognition given to the rising risks to the full employment side of its policy mandate, concerns seemingly given credence to in last week's April labour force report.
