Australia’s inflation rate edged higher in April, surpassing economists’ expectations and coming at a time of heightened market uncertainty due to global tariff tensions. According to the Australian Bureau of Statistics, the Consumer Price Index (CPI) remained steady at 2.4% year-on-year, just above the anticipated 2.3%. This marks the ninth consecutive month the inflation rate has stayed within the Reserve Bank of Australia’s (RBA) target range of 2-3%.
Core Inflation Remains Elevated
Core inflation, as measured by the trimmed mean CPI, also saw a slight increase in April, rising to 2.8% from 2.7% in March. This measure excludes volatile items like food and energy, making it a critical metric for the RBA in guiding monetary policy. Despite some government rebates and subsidies keeping headline inflation subdued, the upward pressure on core prices continues to concern the central bank. As global trade disruptions and geopolitical instability take their toll, inflation has started to take a backseat to broader economic concerns.
Interest Rate Cuts in Response to Economic Risks
The RBA responded to the evolving inflationary and economic conditions by cutting its cash rate by 0.25 percentage points last week, reducing it to 3.85%. This marks the second interest rate cut of the year, reflecting the RBA’s growing concern about economic growth risks. Governor Michele Bullock signaled a shift in focus from inflation to the downside risks posed by trade tensions and global instability. The RBA is now contemplating further rate cuts, with traders assigning a 70% probability of another reduction during the next meeting in July.
Impact of Tariff Uncertainty on Global Economic Outlook
While Australia’s inflation data provides valuable insight, it comes amid significant external factors that threaten global economic activity. The U.S. administration’s trade policies, including tariffs on various goods, have created uncertainty that affects markets worldwide. In response to these ongoing challenges, the RBA is prioritizing economic stability and growth over immediate inflation control. As inflation pressures subside, policymakers are more focused on navigating the economic turbulence caused by these geopolitical and trade-related events.
Key Drivers of Inflation in April
The April data showed that food prices and housing costs were the largest contributors to the annual inflation increase. Food prices, particularly for non-alcoholic beverages, saw significant rises, with egg prices surging 18.6% due to disruptions caused by bird flu outbreaks. Meanwhile, housing costs, including rents, also climbed by 5% over the year, marking the lowest annual growth since February 2023. Despite these inflationary pressures, the RBA remains cautious and vigilant as it monitors economic conditions and adjusts its policy as needed.