Headline inflation cooled over April, with both the effects of the global energy shock and the government’s cost-of-living relief measures flowing through to the Australian economy.
Data published with the Australian Bureau of Statistics (ABS) on Wednesday shows the Consumer Price Index rose 4.2% for the 12 months to April, down from a near-three year high of 4.6% in March.
The cooling is notably more than economists had anticipated but comes largely off the back of the government halving the fuel excise at the start of last month.
The full effect of the tax – levied by governments on the sale of petrol and diesel – is not being felt at the pump with fuel costs having dropped substantially in recent weeks after a record 32.8% price surge in March.
“Automotive fuel prices are still 23.5% higher compared to February and before the impact of the Middle East conflict," ABS head of price statistics Sue-Ellen Luke said.
Despite the help on fuel prices, an uptick in transport usage (+6.6%) was one of the major contributors to inflation over April, along with housing (+6.3%) and food (+2.8%).
Spending on public transport was high in April, though lower than in March and offset by government initiatives. Picture: Getty
Higher mortgage costs and rising fuel, food and services prices have become the norm for Australian households since conflict in the Middle East reignited at the end of February, with three rate hikes having been pushed through by the Reserve Bank in just 16 weeks.
While headline inflation remains significantly above the Reserve Bank’s 2-3% target range, underlying inflation has remained relatively stable all year.
The measure of this, the trimmed mean, strips out the most volatile price movements to provide a more accurate measure of where inflation is sitting.
Over the year to April, trimmed mean inflation was 3.4%, up slightly on 3.3% to March.
| Month | Trimmed mean |
| April | 3.4% |
| March | 3.3% |
| February | 3.3% |
| January | 3.3% |
“Underlying inflation remains above the RBA’s target, however, it is tracking more or less where the RBA was expecting,” REA Group executive manager of economics Angus Moore said.
While the RBA and the Treasury anticipate inflation will continue to rise before peaking in June, the path ahead of interest rates is less certain.
Economists and lenders remain split on whether one more rise might be ahead either as soon as next month or in the second half of the year.
“Higher-than-target inflation means a June rate hike is a possibility,” Mr Moore said.
REA Group executive manager of economics Angus Moore says a June rate hike could still be on the cards. Picture: Supplied
Adding to the case for a June hike is the national unemployment rate, which took an unexpected jump to 4.5% in April up from 4.3% in March.
Jobs data published last week shows 19,000 fewer people were employed last month, meaning Australia is now experiencing the highest unemployment rate since 2021.
With the Reserve Bank obligated to balance price stability and full employment, markets anticipate the bank will need to take its foot off the gas for now with the unemployment rate peak not expected until well into next year.
“Unemployment a bit higher than expected means there's a good chance we see a pause in June,” Mr Moore said.
Expectations for a fourth rate hike from the RBA in June have softened. Picture: Hu Jingchen/Xinhua
“The RBA will want to see how the rate hikes they've already put through flow through over the next few months.”
Despite this, Deloitte Access Economics partner Stephen Smith warns the chance of an August hike is still “firmly in play”.
“The effects of the conflict-driven global energy shock are starting to flow through the Australian economy,” he said.
“With growth already weak and the RBA’s latest forecasts subdued, the board will be mindful that tighter policy could do more damage to activity than is needed to bring inflation back under control.
“That said, the RBA must also be true to its mandate. If inflation does not moderate, or if energy-driven price rises become embedded in expectations and wage-setting, the board will need to act”
Tensions in the Middle East remain high, with an increasingly tenuous ceasefire having been in place for seven weeks.
“Even if the Strait of Hormuz reopens soon, global energy markets will take time to stabilise,” Mr Smith warned.
“The immediate shock may fade, but the pass-through to freight, production costs and consumer prices will take longer.”
Global energy markets are expected to take months to stabilise once the passage through the Persian Gulf is clear. Picture: Getty
Minutes from the last monetary policy board cash rate decision earlier this month reveal the housing market has been the first area to feel the pinch from the flow through of February and March rate hikes into the economy.
National home prices dropped in April for the first time since late 2024, with high inflation and uncertainty over the length of the war weighing on confidence and borrowing capacities.
Markets are pricing in just a 4% chance of another rate hike when the RBA next meets on 16 June.
One more increase to the cash rate would bring it to the highest level Australia has experienced since the end of the Global Financial Crisis.
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