| Consensus | Actual | Previous | |
|---|---|---|---|
| CPI - Y/Y | 6.4% | 6.8% | 6.3% |
Highlights
Monthly CPI data show that headline inflation rose to 6.8 percent in April from 6.3 percent in March, above the consensus forecast of 6.4 percent. This follows three consecutive monthly declines and takes inflation further above the Reserve Bank of Australia's target range of 2.0 percent to 3.0 percent. This monthly indicator measures the year-over-year change in the CPI index compared with the same month twelve months earlier.
Officials note that the increase in headline inflation in April largely reflects the base effect of a large reduction in fuel excise tax in April 2022. This reduction in fuel excise tax was then wound back over the following six months and will continue to impact year-over-year comparisons for the next six months.
The measure of inflation that excludes this and other volatile items show underlying price pressures moderated in April, falling to 6.5 percent from 6.9 percent in March. Most categories of spending recorded smaller year-over-year price increases in April, including clothing and footwear, housing, communication, and furnishings, household equipment and services. Food price inflation also moderated slightly but remains strong.
The RBA increased policy rates by 25 basis points at its most recent meeting at the start of the month, with the minutes to this meeting noting that inflation remains too high and is not expected to return to the top of the target range until mid-2025. Officials also warned that inflation could moderate more slowly than currently forecast if productivity growth does not recover from recent weakness or if inflation expectations move higher.
Today's data showing a moderation in underlying price pressures will likely reassure officials that previous policy tightening is having the intended effect. This may reinforce the case for rates to be left on hold at their policy meeting next week. Nevertheless, their concerns about the persistent strength in inflation and upside risks to the outlook also suggest that another policy rate increase will at least be carefully considered at that meeting.
Officials note that the increase in headline inflation in April largely reflects the base effect of a large reduction in fuel excise tax in April 2022. This reduction in fuel excise tax was then wound back over the following six months and will continue to impact year-over-year comparisons for the next six months.
The measure of inflation that excludes this and other volatile items show underlying price pressures moderated in April, falling to 6.5 percent from 6.9 percent in March. Most categories of spending recorded smaller year-over-year price increases in April, including clothing and footwear, housing, communication, and furnishings, household equipment and services. Food price inflation also moderated slightly but remains strong.
The RBA increased policy rates by 25 basis points at its most recent meeting at the start of the month, with the minutes to this meeting noting that inflation remains too high and is not expected to return to the top of the target range until mid-2025. Officials also warned that inflation could moderate more slowly than currently forecast if productivity growth does not recover from recent weakness or if inflation expectations move higher.
Today's data showing a moderation in underlying price pressures will likely reassure officials that previous policy tightening is having the intended effect. This may reinforce the case for rates to be left on hold at their policy meeting next week. Nevertheless, their concerns about the persistent strength in inflation and upside risks to the outlook also suggest that another policy rate increase will at least be carefully considered at that meeting.
Market Consensus Before Announcement
Consensus for consumer prices in April are expected to re-accelerate slightly to a year-over-year 6.4 percent versus 6.3 percent in March, which compared with expectations for 6.6 percent.
Definition
The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by households for a fixed basket of goods and services. In Australia, the CPI measures the changes in the price of a fixed basket of goods and services, acquired by household consumers who are residents in the eight State/Territory capital cities. (Darwin, Perth, Sydney, Melbourne, Hobart, Brisbane, Canberra and Adelaide).
Data are released quarterly and, since 2022, monthly. Quarterly inflation data measure the year-over-year change in the index relative to the same quarter twelve months previously. Monthly inflation data measure the year-over-year change in the index relative to the same month twelve months previously.
Data are released quarterly and, since 2022, monthly. Quarterly inflation data measure the year-over-year change in the index relative to the same quarter twelve months previously. Monthly inflation data measure the year-over-year change in the index relative to the same month twelve months previously.
Description
The consumer price index is the most widely followed indicator of inflation. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. In countries such as Australia, where monetary policy decisions rest on the central bank's inflation target, the rate of inflation directly affects all interest rates charged to business and the consumer.
Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets - and your investments. Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.
By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.
For monetary policy, the Reserve Bank of Australia generally follows the annual change in the consumer price index. It has an inflation target of 2 percent to 3 percent. The RBA also has two preferred core or analytical measures - the weighted and trimmed means. The trimmed mean is a method of averaging that removes a small percentage of the largest and smallest values before calculating the mean. After removing the specified observations, the trimmed mean is found using an arithmetic averaging formula. The weighted mean excludes certain items from the CPI basket (the exclusion approach). Typically, the excluded items are those that are volatile and/or display pronounced seasonal patterns, and those that are subject to administrative price setting.
Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets - and your investments. Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.
By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.
For monetary policy, the Reserve Bank of Australia generally follows the annual change in the consumer price index. It has an inflation target of 2 percent to 3 percent. The RBA also has two preferred core or analytical measures - the weighted and trimmed means. The trimmed mean is a method of averaging that removes a small percentage of the largest and smallest values before calculating the mean. After removing the specified observations, the trimmed mean is found using an arithmetic averaging formula. The weighted mean excludes certain items from the CPI basket (the exclusion approach). Typically, the excluded items are those that are volatile and/or display pronounced seasonal patterns, and those that are subject to administrative price setting.
