Consumer price increases in Australia came in below expectations during April, helped by government reductions to fuel taxes, according to new data released Wednesday. However, underlying inflation measures continued climbing as elevated oil costs impacted the broader economy.
The Australian Bureau of Statistics reported its monthly consumer price index climbed 0.4% in April compared to the prior month, while the yearly rate dropped to 4.2% from the previous 4.6%.
Economists had projected a monthly increase of 0.6% and an annual rate of 4.4%.
The trimmed mean core inflation gauge rose 0.3% for the month, meeting expectations while pushing the annual rate to 3.4% – the highest level since late 2024 and well above the Reserve Bank of Australia’s target range of 2% to 3%.
The softer headline numbers caused the Australian dollar to drop 0.1% to $0.7157, while three-year bond futures gained 5 ticks to 95.49. Markets reduced the probability of a fourth rate increase from the RBA in August to 40% from 51%.
“We expect headline inflation to peak at 4.9% in Q2 before falling below the 3% ceiling of the RBA’s target band in mid-2027,” said Harry McAuley, economist for Oxford Economics Australia.
“Considered alongside the jump in the unemployment rate in March, we are firm on our view that the rate hike cycle is on hold.”
The central bank has implemented three rate increases this year, bringing rates to 4.35% to combat an energy shock driven by war, completely unwinding policy easing from 2025. Central banks globally have adopted more aggressive stances, with the European Central Bank expected to raise rates next month and the Federal Reserve considering abandoning its easing position.
Unemployment unexpectedly rose to a 4-1/2 year peak of 4.5% in April, potentially indicating the job market may be softening enough to prevent additional rate hikes. Financial markets are pricing in one additional increase to 4.6% after the RBA indicated it now has room to evaluate how the Iran conflict develops.
The United States has targeted boats and missile installations in Iran while Tehran has accused Washington of breaking a delicate ceasefire that has lasted nearly seven weeks. Oil and gas shipments through the Strait of Hormuz – which handles 20% of global energy transport – have been reduced to minimal levels.
Wednesday’s data revealed automotive fuel costs dropped 7% during the month after surging 32.8% previously, as the government cut fuel excise taxes in half starting in April.
Elevated oil prices were impacting products and services with significant freight and transportation expenses. Postal service prices surged 12.4% while new home construction costs increased 4.7% compared to the previous year.
