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Inflation Defies Expectations

In a surprising turn of events, yesterday’s increase in Consumer Price Index (CPI) surpassed market expectations. This development raises the likelihood of the Reserve Bank of Australia opting to raise the official cash rate during its upcoming meeting next week on Tuesday. 

The monthly CPI indicator rose 6.8 per cent in the year to April 2023, according to the latest data from the Australian Bureau of Statistics (ABS). This month’s annual increase is higher than the 6.3 per cent annual rise reported in March 2023 but is below the high of 8.4 per cent recorded in December 2022.

ABS head of prices statistics Michelle Marquard said the high price of automotive fuel was a factor in the rise. 

“It’s important to note that a significant contributor to the increase in the annual movement in April was automotive fuel. The halving of the fuel excise tax in April 2022, which was fully unwound in October 2022, is impacting the annual movement for April 2023,” Ms Marquardt said.

However, CPI inflation is often impacted by items with volatile price changes, such as automotive fuel, fruit and vegetables and holiday travel. 

It can be helpful to exclude items with volatile price changes from the headline CPI to provide a view of underlying inflation

 “When excluding these volatile items, the annual movement of the monthly CPI indicator was 6.5 per cent in April, lower than 6.9 per cent recorded in March.”

The most significant contributors to the annual increase in the monthly CPI indicator in April were housing, food and non-alcoholic beverages, transport, recreation and culture. However, food and non-alcoholic beverages have eased slightly from an annual increase of 8.1 per cent in March to 7.9 per cent in April. The annual movement for transport rose to 7.1 per cent off the back of higher petrol prices compared to April last year.

“Automotive fuel prices were 9.5 per cent higher this month than they were in April 2022 when prices fell following the 22 cents per litre cut in the fuel excise introduced on 30 March 2022. This contrasts to March 2023, which saw an annual fall in fuel prices of 8.2 per cent, compared to the high prices recorded in March 2022 related to the war in Ukraine.” 

The annual increase for the Housing group in April of 8.9 per cent was lower than the increase in March of 9.5 per cent.

“Within the Housing group, New dwelling prices rose 9.2 per cent, which is the lowest annual growth since February 2022 as building material prices continue to ease. Rent prices rose further from an annual rise of 5.3 per cent in March to 6.1 per cent in April as the rental market remains tight.” 

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