Your mortgage repayments might just stay put for now, mate. New data from the Australian Bureau of Statistics shows inflation pulled back to 4.2 per cent in April, down from 4.6 per cent in March. This unexpected softening means that dreaded interest rate hike, which everyone was banking on, looks less certain right now.
Prices actually dropped by 0.1 per cent over the month of April. This represents a significant shift in economic momentum compared to the 1.1 per cent jump seen in March, largely because of the government’s decision to slice the fuel excise in half. You’ve probably noticed the difference at the pump, as petrol and diesel prices eased by 7 per cent last month. Don’t get too excited though; liquid fuel costs remain 23.5 per cent higher than they were back in February, before the hostilities between the United States, Israel, and Iran kicked off.
Even with cheaper petrol, businesses are clearly pushing their higher logistics costs onto you. If you’ve tried to send a package lately, you’ll have noticed the hit. Postal service prices shot up 6 per cent in April, sitting at 12.4 per cent higher than this time last year. Building a house is getting even uglier for your savings, with construction costs lifting by 7 per cent as builders pass on their own fuel surcharges and expensive materials to clients.
Holidaymakers haven't been spared either. Domestic and international travel costs have climbed, partly because of the school holiday rush, but also because airlines are passing on the soaring price of jet fuel. The measure of underlying inflation, which is the RBA’s favourite number to watch, actually crept up to 3.4 per cent from 3.3 per cent. This shows that price pressure is still very much baked into the cake.
Treasury analysis shows that our cut to the fuel excise reduced headline inflation by around half of a percentage point.
Treasurer Jim Chalmers noted that while this relief helped in April, the party ends on June 30. He doesn't seem keen on extending that hand-out. That leaves the shadow treasurer, Tim Wilson, claiming that the $250 income tax offset promised in the budget will be gone before you’ve even put up your Christmas tree. Wilson argues that the government’s policies have made things worse, essentially using inflation to claw back their own tax promises.
Financial markets were expecting a headline rate of 4.4 per cent, so the lower result sent shockwaves through the system. Investors have now slashed the likelihood of an August rate hike from a near certainty down to a one-in-three chance. While a rate rise this year is still a 76 per cent possibility, the mood has shifted toward the RBA starting to cut rates by the end of next year.
Paul Bloxham, the chief economist at HSBC Australia, suggests the Reserve Bank will take some comfort in these numbers. He reckons the economy is cooling off quite rapidly. Recent employment data confirms that the engine is losing power, and there's a strong chance our GDP is already heading into negative territory.
Matthew Hassan, the head of macro-forecasting at Westpac, points out that the Westpac-Melbourne Institute leading index has suffered back-to-back negative reports for the first time since 2004. This index tries to predict growth up to nine months out, and it’s clearly pointing to a downward trend. Carolyn Hewson, a member of the Reserve Bank’s board, warned that even though oil doesn't run the economy the way it did in the 1970s, sustained high prices can still lead to messy wage bargaining and further inflation.
For Australians with ties to the global market, remember that these supply chain disruptions echo some of the volatility seen in commodity-dependent nations like Nigeria. When global oil markets are shaken by war, the downstream effects on transport, energy, and goods often hit emerging and developed economies alike. In our backyard, that looks like paying significantly more at the local shops and hoping the central bank doesn't tighten the screws on your home loan while the economy is already struggling to find its feet.