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Inflation has eased from a three-year high as the federal government’s cut to petrol excise artificially reduces the cost of living.
The Australian Bureau of Statistics reported on Wednesday that inflation fell to 4.2 per cent in April, after spiking to 4.6 per cent in March.
Last month alone, prices fell by 0.1 per cent after jumping by 1.1 per cent in March.
The result was driven by the movement in petrol prices. Transport costs, which soared by 9.2 per cent in March, fell by 2.7 per cent last month.
But in a sign that price pressures remain embedded in the economy, the closely watched measure of underlying inflation rose slightly to 3.4 per cent, up from 3.3 per cent in March.
Treasurer Jim Chalmers said the government’s halving of the fuel excise helped ease price pressures last month, but that the cost-of-living relief was unlikely to be extended beyond its scheduled end on June 30.
“Treasury analysis shows that our cut to the fuel excise reduced headline inflation by around half of a percentage point,” Chalmers said at a press conference in Canberra on Wednesday.
Chalmers welcomed a moderation in food and rent prices in the latest data, but warned the fallout from the Iran war would continue to linger in the broader economy.
ABS head of prices statistics, Sue-Ellen Luke, said fuel prices were still 23.5 per cent higher than before the Middle East conflict.
“The fall this month includes the halving of the fuel excise on 1 April,” she said.
“The impact of higher oil prices has also been seen in products and services with high freight and logistics costs, such as parcel delivery and building materials. This is reflected in price increases of... 4.7 per cent for new dwelling construction compared to 12 months ago.”
The ABS figures showed the price of housing rose 6.3 per cent in April, making it the largest contributor to annual inflation as the highest-weighted item in the consumer price index. The 6.6 per cent rise in transport was the next biggest contributor.
Fuel prices fell 7 per cent from March to April, after rising 32.8 per cent the month before.
Average prices for regular unleaded petrol fell 10 per cent, from $2.28 per litre in March to $2.06 per litre in April. The average price of diesel rose 14 per cent, from $2.56 a litre to $2.92 a litre, despite the excise cut.
Oxford Economics Australia economist Harry McAuley said the rise in postal service and housing construction prices was the first sign of the broader economic fallout from higher oil prices because of the war in Iran.
He said he expected headline inflation to peak at 4.9 per cent this quarter before falling into the RBA’s target band of 2 to 3 per cent in mid-2027.
“Our outlook is contingent on a reopening of the Strait of Hormuz next month – the longer the conflict drags on, the higher the risk that inflation exceeds our expectations,” he said.
McAuley said Wednesday’s inflation figures and the jump in the unemployment rate last month signalled the Reserve Bank would keep rates on hold.
“Assuming tankers are able to exit the strait sooner than later, we expect rates to remain at 4.35 per cent until late 2027.”
Before the figures were released, expectations of an interest rate rise by the Reserve Bank had been falling. A week ago, financial markets had fully priced in a rate rise by August with a 50-50 chance of a follow-up increase by year’s end.
But concerns over the global economy due to the US and Israel’s ongoing war against Iran had dramatically wound back expectations, with markets now expecting one rate cut towards the end of this year and a high chance of rate cuts in late 2027.
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