Inflation data for April has come in lower than expected, with the major banks now forecasting the Reserve Bank to keep the cash rate on hold at its June meeting.
The latest monthly Consumer Price Index has shown headline inflation continuing to drift lower, with the Commonwealth Bank of Australia, Australia and New Zealand Banking Group, and Westpac all stating that the figures are consistent with the cash rate holding at 4.35 per cent for now.
The Australian Bureau of Statistics reported on Wednesday (27 May) that prices over the year to April were up 4.2 per cent, easing from 4.6 per cent in March.
Housing costs rose 6.3 per cent over the year, transport prices climbed 6.6 per cent, and food and non‑alcoholic beverages were 2.8 per cent higher.
On the underlying measures, the picture was more stubborn, with the trimmed mean – which strips out volatile items and guides the RBA’s medium‑term thinking – ticking up to 3.4 per cent in annual terms, from 3.3 per cent in March.
ABS head of prices statistics, Sue‑Ellen Luke, said swings in petrol prices and changes to the fuel excise played a major role in the monthly move.
“Automotive fuel prices fell 7 per cent from March to April, after rising by 32.8 per cent in the previous month. The fall this month includes the halving of the fuel excise on 1 April. Automotive fuel prices are still 23.5 per cent higher compared to February and before the impact of the Middle East conflict,” she said.
“The impact of higher oil prices has also been seen in products and services with high freight and logistics costs, such as parcel delivery and building materials.
“This is reflected in price increases of 12.4 per cent for postal services and 4.7 per cent for new dwelling construction compared to 12 months ago.”
CBA and ANZ reiterate extended hold forecasts
The Commonwealth Bank of Australia said that the figures reinforced its expectation that the Reserve Bank of Australia would not move to raise the cash rate at its June meeting.
“Overall, the data supports our forecast of an on-hold RBA. We have flagged a June rate hike was off the table post the comments at both the May meeting and release of the RBA minutes,” CBA said.
“While there remains a possibility of further tightening from here until the August meeting it is still 10 weeks away and the activity side of the economy is becoming more of a focus.”
Australia and New Zealand Bank also saw the release as supportive of a pause, noting that the overall profile of the data was a little weaker than they had pencilled in.
“While the trimmed mean figure printed in line with expectations, rising 0.3 per cent m/m, the details of the release were a little softer than expected. Headline inflation rose 0.4 per cent m/m (0.35 per cent to two decimal places), below our and the market’s expectations, and there were only modest signs that higher input costs were flowing through to the broader inflation basket,” it said.
With that backdrop, ANZ has maintained its existing forecast of an extended hold period.
“We continue to expect the RBA will keep rates on hold at 4.35 per cent,” the bank said.
Westpac says headline surprise welcome but notes core risks ‘building’
Westpac, which is currently predicting two more hikes in 2026, acknowledged that the trimmed mean figure came in a shade below its own forecast.
“The monthly trimmed mean rose 0.3 per cent mth, slighter softer than our expectations for a 0.4 per cent mth lift,” it said.
Yet Westpac stressed that underlying inflation was still too strong for comfort.
“While the headline April CPI was softer than expected, underlying inflation pressures are still building,” the bank outlined.
“The April data show clearer evidence of emerging pass-through of upstream costs. Home-building is the most obvious example, but ongoing above-target inflation in categories such as takeaway food and restaurant meals are also consistent with pass-through building.”
The bank expects core inflation to edge higher to a peak of 4.8 per cent.
Westpac also stressed that the surprise on the headline number had not altered its call for a cash rate hike in August and September.
It described April’s outcome as “a downside surprise” but “not a view-changing one” and pointed to RBA research suggesting that pass‑through from higher energy costs were likely to be “larger and faster than normal”.
[Related: NAB shifts rate hike call as jobless rate rises]
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