Australia’s consumer inflation holds steady in April

Australian consumer inflation held steady in April as higher health and holiday costs offset a drop in petrol prices, although the monthly measure tends to be volatile and left hopes for more interest rates cuts mostly intact.

Data from the Australian Bureau of Statistics on Wednesday showed the monthly consumer price index rose 2.4% in April compared with a year earlier, unchanged from March but above median forecasts of 2.3%.

The trimmed mean measure of core inflation increased by an annual rate of 2.8% in April from 2.7% in March. A measure excluding volatile items and holiday travel also picked up to 2.8% from 2.6%.

Still, those figures remained in the central bank’s target band of 2-3%.

Market reaction has been a tad muted as the April report only covers a portion of the full CPI basket and is concentrated on goods rather than services. Goods prices rose a mere 0.9% from a year ago.

The Australian dollar was little changed at $0.6440, while three-year bond futures were flat at 96.60.

“Today’s monthly CPI reading is not a comprehensive measure of price growth in the economy, with price changes for durable goods such as clothing and household goods measured, while many services prices are held constant,” said EY chief economist Cherelle Murphy.

“The Reserve Bank is likely to deliver further monetary easing, given the upside risks to inflation have largely disappeared while global policy uncertainty remains elevated.”

Swaps continued to price in a 65% probability for a rate cut at the next meeting in July, while a move in August is more than fully priced in following the release of the second quarter CPI report at the end of July.

The Reserve Bank of Australia cut interest rates to a two-year low last week as cooling inflation at home offered scope to counter rising global trade risks, and left the door open to further easing in the months ahead.

At the same time, the labour market has remained surprisingly resilient, churning out a solid amount of new jobs every month, keeping the jobless rate low at 4.1%. Still tepid wage growth suggests few risks of a damaging wage-price spiral.

Wednesday’s report showed health costs rose 4.4% from a year ago, driven by a jump in health insurance premiums that are usually adjusted in April. Holiday travel and accommodation also jumped 5.3% from a year ago due to stronger demand during the Easter and school holiday period.

Prices for fuel tumbled 12% from a year ago.

Rental prices rose 5.0%, the slowest annual growth since February 2023 in a sign for more inflation relief ahead, while electricity fell 6.5% thanks to government rebates on power bills.