Rate cuts anytime this year in Australia, are now hanging by a thread, given the latest inflation data came in hotter than expected, despite the annual rate falling thanks to base effects from months ago, and some changes in the weightings.

The upside surprise came via a smaller than expected fall in utilities, but stronger than expected increases in health, car prices and insurance. Sticky inflation has become a reality, leaving the RBA board’s decision last month to abandon its stated tightening bias looking premature. Most concerning for the RBA will be the surprising strength in trimmed mean inflation, its preferred measure of underlying price pressures, which rose 4%, also higher than forecast and well above the RBA’s 2-3% target.

The ABS reported that the Consumer Price Index (CPI) rose 1.0 per cent in the March quarter, higher than the 0.6 per cent rise in the December 2023 quarter. Annually, the CPI rose 3.6 per cent to the March 2024 quarter. While prices continued to rise for most goods and services, annual CPI inflation was down from 4.1 per cent last quarter and has fallen from the peak of 7.8 per cent in December 2022.

RBA governor Michele Bullock did warn there will be bumps on the journey back to target, and while one quarterly increase in underlying inflation does not mean disinflation is over it is an early warning sign that Australia could be going the way of the United States, where inflation is proving hard to tame. At very least this higher-than-expected result in the first three months of 2024, suggesting price pressures are proving stickier and bolstering the case for the central bank to hold interest rates at a 12-year high.

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