Annual CPI climbs to highest level since September 2023

Headline inflation rose 4.6 per cent over the year to March, up from 3.7 per cent in February, data from the Australian Bureau of Statistics (ABS) showed on Wednesday (29 April).

“March CPI inflation of 4.6 per cent is up from the 3.7 per cent annual inflation to February,” Sue-Ellen Luke, ABS head of prices statistics, said.

“Annual CPI inflation is the highest it’s been since September 2023.”

The largest contributors to annual inflation were housing (+6.5 per cent), transport (+8.9 per cent) and food and non-alcoholic beverages (+3.1 per cent), the ABS said.

Monthly CPI rose by 1.1 per cent in March, while trimmed mean inflation rose 3.3 per cent over the 12 months to March, unchanged from February.

Despite the uptick in headline inflation, BDO chief economist Anders Magnusson said it was encouraging that trimmed-mean inflation had remained steady.

“Headline CPI was always going to jump as fuel prices rose sharply in March, so the more important signal in today’s release is that trimmed mean inflation remained steady,” he said.

“That points to limited flow-on inflationary impacts from the energy shock in March, with these effects likely to emerge in the coming months.”

Stephen Smith, partner at Deloitte Access Economics, concurred that the steady trimmed mean inflation result likely meant that the fuel shock was yet to show up in CPI data.

“Strip away the volatility of the current geopolitical environment, and price growth is still an issue,” he said.

“Underlying inflation came in at 3.3 per cent year-on-year for March – unchanged on February’s result but still above the RBA’s target range. This suggests the flow-on impact of fuel supply disruptions on other prices in the economy is yet to be captured in the data.”

Smith noted that the data likely would spur another interest rate hike, given that trimmed mean CPI was already above the RBA’s 2–3 per cent target range.

“Today’s CPI print, the first to partially reflect the Strait of Hormuz closure, points to a rate hike from the Reserve Bank of Australia next week,” he said.

“That rate hike is not guaranteed, but Australia’s starting point for inflation heading into this crisis likely leaves the central bank with little choice. The Australian economy was already operating at its speed limit at the start of the year, with broad-based inflationary pressures indicating a mismatch between supply and demand.”

Magnusson noted that the steady March trimmed mean result had likely given the RBA more flexibility in its monetary policy approach and made it possible that the board would hold interest rates at its next meeting.

“Markets have been leaning towards another rate increase, however this result may slightly weaken that view. Trimmed mean inflation is also running slightly below the RBA’s February forecast that it would reach 3.7 per cent by June 2026, giving the RBA more flexibility to assess incoming data,” he said.

“A further increase in the cash rate remains likely, but today’s result reduces the urgency for the RBA to act immediately, and a hold at the May meeting is now a possibility.”

Article updated to include additional commentary.