April Inflation on Hyperdrive, RBA Feels the Pressure

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The consumer price index (CPI) exceeded forecasts by 0.4% to 6.8% compared to the previous month’s 6.3%, and the Reserve Bank of Australia (RBA) is feeling the heat as it initially paused rate hikes.

In April, consumer prices significantly rose compared to what was projected due to several factors, like a surge in fuel prices and substantial gains in housing. Many experts believe it will cause sticky inflation and pressure on the RBA.

The bank also saw month-on-month increases in the CPI, bringing about price increases for many products and services. Marcel Thieliant, a senior economist at Capital Economics, noted that the economy would expect inflation rates that will be more than the bank’s forecast of 6.3% in the second quarter.

Thieliant added, “Coupled with the increasing strength of the rebound in the housing market and continued sluggish productivity growth, that will almost certainly convince the RBA to raise interest rates again, perhaps as soon as next week.”

RBA recently hit the pause button on its ten consecutive interest rate hikes. Still, Thieliant thinks that the bank is ready to resume raising interest rates in connection to its earlier warning that this may be necessary to achieve its target of returning inflation by mid-2025.

Recent data showed an 8.9% increase in housing, 7.9% in food and non-alcoholic beverages, and 7.1% in transport costs, coupled with flat retail sales pressuring the bank to move. Many experts believe that the primary cause of flat retail sales is the significant increase in the cost of living. Data collected by the Antipoverty Centre also pointed to the same conclusion – Australians are pinching every penny to get by. A coordinator at the Centre also noted that “People are just simply going without at the moment; there’s no alternative to it,” explaining that many people are simply skipping meals to save money.

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