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April inflation data weakens RBA outlook: Economists

The higher-than-expected inflation figures for April could weigh on the central bank’s monetary policy decision next week.

The Australian Bureau of Statistics (ABS) has released the monthly consumer price index (CPI) data for April 2023, indicating that inflation has risen to 6.8 per cent over the 12 months leading up to April.

This represents an increase from the 6.3 per cent reported in the previous month, while the latest quarterly data (March 2023) showed inflation had reached 7 per cent.

The monthly CPI data revealed that the most significant price increases were observed in food and non-alcoholic beverages (+7.9 per cent), transport (+7.1 per cent), and housing (+8.9 per cent).


Housing inflation has slightly declined from the 9.5 per cent reported in March and 9.7 per cent in February.

Despite this, the rising cost of new dwellings experienced a 9.2 per cent increase in prices over the year, which was attributed to higher labour and material costs.

While some economists had expected the central bank to maintain the cash rate in June due to weak economic growth and various indicators showing signs of weakness, the latest inflation data surprised several economists.

Westpac’s Justin Smirk said there was now more “upside risk”.

He noted that the dip in housing inflation was partly attributed to state power bill rebates, which prevented even higher housing costs.

“Without these rebates, housing costs would have been a significant factor lifting the total CPI even further,” Mr Smirk said.

“For us the most significant surprise was the 7.2 per cent rise in holiday travel & accommodation. This increase was worth about 0.17ppt on the Monthly Indicator explaining a large part of the upside surprise compared to our forecast.”

The data showed holiday travel and accommodation rose 11.9 per cent in the year to April, down from 13.9 per cent in March, with holiday travel and accommodation prices rising 7.2 per cent in response to demand for domestic accommodation over the Easter and school holiday period.

Rent prices have also risen, recording a 6.1 per cent increase in the year to April, up from 5.3 per cent in March, noting the tight rental market and strong demand for rental properties have contributed to this upward trend.

ANZ economist Adelaide Timbrell expressed concern over the acceleration in inflation, noting that the risks are tilted towards the upside.

RBA governor Philip Lowe also acknowledged in his appearance to the Senate economics legislation committee earlier today that “the risks on inflation are more to the upside and we need to be attentive to that”.

“The risk around our forecast of a 4.1 per cent cash rate in August has been tilted toward earlier and/or more action from the RBA,” Ms Timbrell said.

However, some economists, like AMP economist Shane Oliver, believe that the trend in inflation is still downward, with indications pointing to further decreases ahead.

“Given this along with falling real retail sales and signs of a rising trend in unemployment our base case remains for the RBA to keep rates on hold next week,” Mr Oliver said.

“However, with inflation still very high and upside risks to wages flowing from the upcoming minimum wage increase, the still tight jobs market and faster public sector wages growth the risk of another rate hike is now very high.”

CBA economist Stephen Wu added the clear signs of the economy slowing, on the back of easing demand, demonstrated “further downward pressure on inflation” over time.

Construction work weakens

Separate data from the ABS revealed a 1.8 per cent increase in construction work done in the March quarter, driven primarily by engineering construction work.

However, private sector residential construction experienced a sharp fall of 1.8 per cent quarter on quarter, which is expected to impact GDP growth. On the other hand, strong private sector engineering construction is predicted to provide a boost to GDP growth.

[Related: Concrete evidence of rate hike impact: Economists]

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