Inflation spikes, causing concern about interest rates.

The latest data from the Australian Bureau of Statistics has revealed that inflation has reached its highest level in five months, coming in at 3.6 per cent for the 12 months leading up to April. This is higher than what was expected by the market, which was a decrease to 3.4 per cent. As a result, the possibility of an interest rate cut has been pushed back, and there may even be a chance of another rates increase.

In March, the consumer price index (CPI) for the 12 months was at 3.5 per cent, just slightly lower than the quarterly figure of 3.6 per cent. The last time inflation was above 3.6 per cent was in November, when it reached 4.3 per cent. Michelle Marquardt, the head of prices statistics at the ABS, stated that while inflation has been relatively stable over the past five months, there has been a small increase in the last two months.

One of the contributing factors to the higher-than-expected inflation rate was the cost of housing, which has risen by almost 5 per cent in the past year. Additionally, rents have increased by a staggering 7.5 per cent. Marquardt also noted that if we exclude volatile prices such as petrol and fresh food, the CPI remains stable.

According to Marquardt, items with volatile price changes, such as automotive fuel, fruit and vegetables, and holiday travel, can have a significant impact on the CPI inflation rate. Therefore, it can be helpful to exclude these items from the headline CPI to get a better understanding of the underlying inflation. When we do this for the monthly CPI indicator, the annual rise to April remains steady at 4.1 per cent. This shows that annual inflation, when we exclude volatile items, is still higher than the monthly CPI indicator.

There is still more information to come regarding inflation and its potential impact on interest rates. However, for now, it is clear that inflation has risen to its highest level in five months, and this may have implications for the economy and monetary policy.

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