Australian inflation rose unexpectedly last month, raising questions about whether the RBA will now need to raise rates further.

Inflation in AustraliaAnnualized inflation in Australia rose to 6.8% in the year to April, up 0.5% from the 6.3% seen in March, the latest data released by the Australian Bureau of Statistics (ABS) confirmed.

That was higher than the 6.4% many economists had expected.

Despite the rise in CPI, when price-volatile items such as fuel, fruit and vegetables and holiday travel are excluded, core annualized inflation fell to 6.5%, down 0.4% from March.

Michelle Marquardt, head of price statistics at the ABS, explained that car fuels were the main driver of increased price inflation in April. The reason for this is the end of the October halving of the fuel tax in April last year, which has now permeated the economy.

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“Fuel prices were 9.5% higher this month than in April 2022, when prices fell following a 22 cents per liter cut in fuel excise duty introduced on 30 March 2022,” Ms Marquardt said. This contrasts with March 2023, which saw an annual decline in fuel prices of 8.2%, compared to the high prices seen in March 2022 due to the war in Ukraine.

The Reserve Bank of Australia (RBA) will now carefully consider what their next interest rate decision will be on the 6th.Thursday June.

With core inflation declining over the year to April, the likelihood of further rate hikes is likely to have diminished.

On the 3rd In May, the RBA decided to raise the official cash rate to 3.85%, which meant a 0.25% increase in borrowing costs. This comes after the rate hike cycle was put on hold in April. The RBA has called for rate hikes eleven times since April last year, when rates were at a minimum of 0.10%. Although after four consecutive 0.50% hikes since October, the pace of rate hikes has slowed to a maximum of 0.25%.

The Commonwealth Bank of Australia said ahead of the CPI announcement that it expected interest rates to be on hold again next month.unless there is a big inflation surprise for April.

Housing costs contributed the most to the rise in inflation in the 12 months to April, with prices rising by 8.9%. However, this was lower than the 9.5% increase in housing-related prices found in the year to March.

Ms Marquardt explained that new home prices rose by 9.2%, but this was the slowest rate of price growth since February last year.

This is mainly due to the reduction in the prices of building materials. However, rent prices grew at a faster pace by 0.8% to 6.1% year-on-year. Positive news was also brought by food prices, which fell slightly but remained high.

Annualized food price increases reached 7.9% in April from 8.1% in March, with dairy and related products rising the most by 14.5%. Transportation costs rose 7.1% due to higher gasoline prices in April compared to a year earlier.

HSBC said the pace of wage growth in Australia could be a factor in helping the RBA achieve its 2-3% inflation target. Recent figures revealed that wage growth increased by 3.7% over the past year, the bank said.

As the RBA has stated many times, if productivity growth is averaging around 1% a year over the past decade, annual wage growth of 3-4% is in line with the central bank’s inflation target of 2-3%.

HSBC also said Australia is in a better position than other major economies such as the US and UK, where wage growth is well ahead of the central bank’s inflation targets.

In response to the ABS announcement, the Australian dollar has lost ground against both the US dollar and the British pound, a move that suggests currency markets believe interest rates are most likely to remain unchanged next month.

Currency pair AUD/USD it is trading as low as $0.6475 and looks like it could go down further. Australian two-year government bond yields were mostly flat with a modest decline of just 0.03% to trade at 3,564 at the day’s close.

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