Inflation Progress Patchy, Services Improving, RBA On Hold

Q1 CPI came in higher than expected rising 1.0% q/q and 3.6% y/y. While the quarterly rate was 0.4pp higher than in Q4, the annual rate eased 0.5pp. The trimmed mean was also 1% q/q higher bringing the annual rate to 4% from 4.2%. Inflation is moving closer towards the RBA’s target band but the strength in the quarterly rises and pick up in March if sustained threaten that progress and so rate cuts look off the table for most if not all of 2024 at this stage.

• To meet the RBA’s Q2 forecasts a significant but not unlikely moderation is required in Q2 to around 0.5-0.6% q/q.
• Key domestically-driven components remained elevated but made further gradual progress posting their lowest annual growth in around two years. Services inflation eased 0.3pp to 4.3% y/y, core services 0.2pp to 4.3%, and non-tradeables 0.4pp to 5.0%. The series aren’t seasonally adjusted and usually show strong quarterly rises in Q1.
• Lower goods and tradeables inflation continued to be the main drivers of lower annual CPI rates.

Source: Market News/Refinitiv

• The monthly March outcome was in line with expectations at 3.5% y/y up from 3.4%. With the series sitting around this rate for the last four months, there are signs that disinflationary progress has stalled. The trimmed mean, CPI ex volatile items & travel and non-tradeables saw March annual rates pick up.

Source: MNI - Market News/ABS

• The ABS points out education (+5.9%), health (+2.8%), housing (0.7%) and food & beverages (+0.9%) as the main drivers of the quarterly increase. Low vacancies continued to boost rents with them rising a further 2.1% q/q and labour and material costs driving the 1.1% rise in new dwelling construction prices.