Better-than-expected inflation figures could spare rate-hike weary borrowers from another increase next month, but economists have warned there will likely be more pain around the corner.
New data from the Australian Bureau of Statistics (ABS) released this morning showed headline inflation cooled from 4.6 per cent to 4.2 per cent in the 12 months to April.
The trimmed mean, which is the primary measure of underlying inflation used by the Reserve Bank, rose slightly to 3.4 per cent in the 12 months to April, up from 3.3 per cent in the 12 months to March.
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Treasurer Jim Chalmers welcomed the news but acknowledged that inflation is “still too high”.
“We’ve had an inflation challenge in our economy, which is made worse by the war in the Middle East and what we see in these numbers is some encouraging numbers,” he said.
The lower headline figure was the result of softening fuel prices, which dropped last month due to the temporary halving of the fuel excise, more supply secured and free transportation in some states.
The data came in slightly lower than market expectations, which had predicted inflation to come in around 4.4 per cent.
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AMP economist My Bui said today’s inflation figures mean the Reserve Bank can comfortably hold rates in June, but will do little to change the bank’s forecast of trimmed mean inflation rising to 3.8 per cent later this year.
“We believe that the Reserve Bank will hike once more this year (likely in August), following confirmation of further rises in trimmed mean figures as well as solid GDP data for the first quarter,” she said.
eToro lead analyst Josh Gilbert said the RBA still has a battle with inflation and has little breathing room as inflation is still well above the 2-3 per cent target.
“The RBA meets again in June and is widely expected to hold at 4.35 per cent. Today’s print won’t change that, but it does reinforce why we’ve seen three rate hikes and why another is still pencilled in this year,” he said.
“With trimmed inflation edging higher and the cost of the current conflict feeding deeper into supply chains, it’s an uncomfortable position for the RBA to be in, and shows the job is not done.”
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Inflation in Australia is higher than in the UK, US, Canada, New Zealand, European Union and Japan.
This is despite Australia having the highest cash rate and three consecutive hikes this year.
Canstar data insights director Sally Tindall said inflation has remained “stickier than a toffee apple”.
“In the last 12 months, the only moves it’s made were in the wrong direction,” she said.
“If the (RBA) board does pause in June, it won’t signal the end of the hikes.
“If the current cash rate setting doesn’t get inflation moving back in the right direction, the RBA will have no option but to ratchet up the pressure even further.”
All big four banks are forecasting the Reserve Bank to hold interest rates at its next meeting in June.
ANZ and Commonwealth Bank are forecasting no more increases for the rest of the year, while Westpac has predicted two more hikes and NAB one more.
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