Australia CPI rises less than expected in April, core inflation up

Investing.com-- Australian consumer price index inflation grew slightly less than expected in April as fuel prices fell from their March peaks and as the halving of a government duty helped curb energy costs.

But core inflation rose slightly from the prior month, indicating that underlying price pressures remained.

CPI inflation grew 4.2% year-on-year in April, data from the Australian Bureau of Statistics showed on Wednesday. The print was softer than expectations of 4.4% and also retreated from the 4.6% rise seen in the prior month.

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Fuel prices remained elevated, but cooled from their March peaks as hopes for a U.S.-Iran peace deal brought down global oil prices. Fuel price pressures were further curbed by the halving of a government excise.

Underlying inflation– as represented by trimmed mean CPI– remained sticky, rising to 3.4% in April from 3.3% in March.

Elevated fuel prices– which still remained up 23.5% from pre-war levels– were seen factoring into other sectors, such as transportation, freight, and construction, ABS data showed.

Wednesday’s reading indicated that Australian inflation remained underpinned by higher fuel prices stemming from the U.S.-Israel war on Iran.

This trend is widely expected to keep the Reserve Bank of Australia hawkish in the coming months, after the central bank hiked rates by a cumulative 75 basis points this year.

The RBA signaled during its previous meeting that it saw policy as sufficiently restrictive for the time being, and that the central bank now planned to observe the effects of higher interest rates.

Capital Economics analysts said the April print showed price pressures becoming somewhat contained for now, giving the RBA more impetus to pause its rate hike cycle in June.

"However, if we’re right that the rise in underlying inflation has further to run, the Bank won’t hold its fire for long," Capital Economics analysts said.

A slightly firmer underlying inflation print for April indicated that price pressures beyond just fuel remained elevated. Housing costs-- through rent and mortgage rates-- continued to drive inflation higher.

Capital Economics expects the RBA to deliver at least one more 25 basis point hike in the third quarter.