The latest monthly data on inflation from the ABS which came out today reported Annual growth in the non-seasonally adjusted monthly CPI lifted from 3.5 per cent last month to 3.6 per cent, above market expectations, while seasonally adjusted CPI is even higher at 3.8 per cent, and annual trimmed mean inflation (which removes food, fuel and holiday travel) rose to 4.1 per cent, from a low of 3.8 per cent in January.
Consumers were hit with the biggest increase in health insurance premiums in several years, following the annual lift in health insurance premiums, bad weather caused fruit and vegetable costs to rise. The outcome was also driven by higher petrol prices, less household goods discounting, stamp price rises and rents. In fact, both goods and services inflation rose.
While the RBA still considers the quarterly CPI the best gauge of inflationary pressures, the new monthly indicator factors into the central bank’s interest rate decisions, particularly when it delivers an unexpected outcome.
Judo Bank chief economic advisor Warren Hogan said the latest CPI figures would test the RBA’s patience. “Inflation is not falling back to target with signs that inflation’s underlying ‘pulse’ might be picking up in 2024,” he said.
“The RBA was very close to hiking the rate earlier this month. This number could tip them over to raising rates at their next meeting on June 18.”
This is not the progress the Reserve Bank wants to see, especially given the weakness in consumer spending evident across the economy, whether in official retail sales data (which is going backwards in inflation-adjusted terms), or the big profit downgrades in the last week from the likes of listed car dealers Eagers Automotive and Peter Warren Automotive.
With inflation surprising to the upside and the Fair Work Commission to announce next week an increase in the minimum wage, UBS chief economist George Tharenou said there was a “lingering risk” the RBA could be forced to raise the cash rate in the coming months.
Households, already under pressure, continue to feel the pain, as the latest data from Roy Morgan on consumer confidence reported another fall, and the accumulating data from the DFA surveys for May will report a further distressing rise in financial stress: The first results will be reported in the Sunday show, with more detailed analysis to follow.
Markets reacted to the news, with the ASX 2000 down 1.3%, while the 2-year bond rate rose 0.84% to 4.183. The Aussie rose 0.13% against the USD to 66.56 cents. The ASX Rate tracker shows a slight rise to October, and cuts pushed well out into 2025.
So, higher for longer, again, and I would remind you that the RBA’s blunt instrument of interest rate rises is only indirectly hitting many of the sectors of the economy. More significantly, global shipping costs are rising again, with Drewry’s World Container Index up 16% to $4,072 per 40ft container this past week. All major routes are impacted.
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