April CPI – undershoots on volatiles
Monthly April CPI 0.4%mth/4.2%yr, Trimmed Mean 0.3%mth/3.4%yr.
- April CPI rose 0.4%mth (4.2%yr), undershooting our expectations, with the weakness concentrated in volatile and policy‑affected components such as transport; in seasonally adjusted terms, CPI fell –0.1%mth.
- Underlying inflation was more persistent, with trimmed mean at 0.3%mth, up 3.4%yr from 3.3% in March. Pass‑through from higher fuel costs to freight‑exposed components remains limited for now, partly dampened by policy. But early signs are emerging in housing and select services.
- While the headline figure was a (welcome) downside surprise, it was not a view-changing one. We continue to expect that second-round effects will be larger and faster than normal, with inflation pressures building throughout Q2 and peaking in Q3.
The April CPI rose 0.4%mth to be up 4.2%yr. This represents a moderation from the 4.6%yr pace recorded in March and came in below Westpac's near-cast of 0.9%mth/4.8%yr and market expectations of 4.4%yr. April is normally a seasonally strong month; the seasonally adjusted figure recorded a fall (–0.1%mth), compared with our nowcast of 0.3%mth.
Much of the miss was concentrated in volatile or policy-affected items that do not speak to the pass-through of energy prices and other supply effects stemming from the conflict in the Middle East.
The largest contributors to growth in the month were holiday travel & accommodation, which rose 5.5% in the month due to strong demand over the Easter holiday, this added +0.3ppts, while medical & hospital services added +0.2ppts. These were partly offset by transport, which fell –2.7% in the month detracting –0.3ppts due to the halving of the fuel excise and the free public transport in Vic and Tas. Still transport costs were up 6.6% higher than a year ago with retail petrol and diesel up 21.5%yr and 63.6%yr respectively. Overall, we had expected a more pronounced lift in holiday travel in April with transport to only detract a little more than 0.1ppt.
The monthly trimmed mean (TM) rose 0.3%mth, against our expectations for a 0.4%mth lift. The annual pace lifted slightly to 3.4%yr from 3.3%yr in the prior month, while the six-month annualised paced continued to ease, down to 3.2% from 3.8% in December.
With the Middle East conflict pushing up energy prices and other energy intensive commodities from late February, the April print offers the first real window into whether those cost increases are flowing through to the broader basket beyond the immediate impact to the automotive fuel category seen last month (note all figures below are in seasonally adjusted terms).
While we had expected higher fuel prices to feed through to freight‑exposed components, policy measures – including the halving of the fuel excise and removal of the heavy vehicle road user charge – are delaying these second‑round effects. With these measures set to end in July, some pass‑through may still lie ahead. Moreover, the new fuel recovery measure that allows transport operators to recoup higher fuel costs will see freight prices increase, particularly among more freight intensive industries such as wholesale trade, agriculture and manufacturing leading to some spillovers across supply chains and more broadly into consumer prices.
While we expect these be more evident in the months ahead, there were emerging signs of second-round effects of higher commodity prices in April. Home-building was the clearest example. New dwelling purchases was the key upside surprise in month, rising 0.7%mth, this was the strongest monthly lift since November 2023. The ABS noted project home builders have raised base prices to pass-through fuel surcharges and higher materials costs. We had also flagged in our preview that price increase notifications by trade materials suppliers had surged in April and May. We have seen some moderation since then but overall, it remains elevated and suggests there may be more pressures to come. Dwelling repair costs also showed a solid increase in April, at 0.4%mth it was the largest since last October.
Ongoing above-target inflation is also seen in other fuel-exposed categories such as takeaway food and postal services. The latter recorded a 3.9%mth lift following a 3.4%mth lift in March.
We expect inflation pressures to build through Q2 and materialise in Q3, with headline and trimmed mean inflation peaking at 5.0%yr and 4.0%yr respectively. Indeed, several surveys point to further upside pressure. The NAB business survey has shown a strong lift in upstream costs that is now beginning to flow into selling prices. There have also been additional price increases announced by construction trade suppliers since our preview last Friday.
By contrast, the ABS’ reintroduced business conditions survey suggests a more muted response so far, with many firms reporting that they have absorbed fuel‑related cost pressures and only a small share lifting prices. However, this is likely only an early read, as the survey focuses on direct responses to fuel prices or availability, meaning downstream firms may not yet be adjusting. In addition, multiple responses can be selected, so firms may be both absorbing some costs and passing others through.
Overall, while the headline figure was a (welcome) downside surprise, it was not a view-changing one. As the RBA has also highlighted in recent research, pass-through of higher energy and regulatory costs to other prices is likely to be larger and faster than normal given the size of the shock. Today’s data showed some signs of this pattern, just not as much as we feared. We also think the RBA will mostly look through the apparent weakness in April labour force data, alert to the same unusual seasonality that we noted last week.
Some other key details surrounding our forecasts in the month (non-seasonally adjusted):
- Food was notably softer at 0.1%mth against our 0.7% near-cast. Fruit & vegetables was the major miss within food, rising just 0.7% vs our 3.5% forecast. This was due to a –2.2% fall in fruit prices against our expectation of a 4.6% lift.
- Clothing & footwear rose 3.9%mth, below our 4.6% forecast with the annual pace running at 5.9%yr and above the RBA’s target since mid-2025. This is largely driven by accessories which are running at 17.0%yr.
- Health was an upside surprise, up 2.6%mth against our 1.9%mth near-cast. Medical & hospital services rose 3.5% vs our 2.7% forecast, with medical & hospital services the key driver at 3.5% vs 2.7% following the 4.4% rise in health insurance effecting April – the largest since 2017.
- Rents were inline with our expectation for a 0.2%mth lift. The ABS noted that the usual biannual indexation of Commonwealth Rent Assistance which occurred in late-March continued to soften the increase in rents this month.
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