The Reserve Bank could deliver a further 0.25 percentage point hike in the next few months, potentially as early as next Tuesday, after today’s CPI figures confirmed inflation has remained stubbornly high in some categories.
In a mixed bag of results, the latest data from the Australian Bureau of Statistics (ABS) shows annual inflation increased from 6.3 per cent in March to 6.8 per cent in April.
While the rise was largely driven by the halving of the fuel excise a year ago, categories such as rent and travel remained elevated.
This month's annual increase of 6.8 per cent 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.
However when you remove volatile items, in particular fuel and the associated rise in transport costs, the monthly inflation figure looks better.
Interpreting the monthly CPI figure is difficult as it is only a partial indicator of inflation dynamics, since it does not include all the items in the "basket of goods and services" that are in the quarterly CPI figures that the Reserve Bank bases its decisions on.
Michelle Marquardt, ABS head of prices statistics, said:
"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.”
Factors affecting CPI
CPI inflation is often impacted by items with volatile price changes such as automotive fuel, fruit and vegetables and holiday travel.
Ms Marquardt explained:
"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."
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According to the data, the most significant contributors to the annual increase in the monthly CPI indicator in April were:
- housing (+8.9 per cent),
- food and non-alcoholic beverages (+7.9 per cent),
- transport (+7.1 per cent) and
- recreation and culture (+6.4 per cent).
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.
Ms Marquardt explained further:
"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.”
Price rises for food and non-alcoholic beverages remain high but have eased slightly from an annual increase of 8.1 per cent in March to 7.9 per cent in April.
Food products (not elsewhere classified) (+11.7 per cent) were the main contributor to the annual increase, followed by bread and cereal products (+11.4 per cent) and dairy and related products (+14.5 per cent).
The annual movement for transport rose to 7.1 per cent off the back of higher petrol prices compared to April last year.
Ms Marquardt commented:
"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.”
