Upside surprise
Monthly inflation was expected to be higher over the year in April, due to significant base effects and the halving of the fuel excise duty in April 2022 (later unwound in October).
In the event, though, the increase was worse than expectations, with the year-on-year increase in prices lifting from 6.3 per cent to 6.8 per cent.
This new and somewhat experimental inflation gauge peaked at 8.4 per cent in December 2022, so it’s well down from that alarming level at least.
Although futures markets are now looking for one more rate hike in this cycle by September, the Aussie dollar actually declined a little on the day's data dump, however.
This may have been because the ABS explained that excluding volatile items the monthly inflation gauge dropped to an annual reading of 6.5 per cent (down from 6.9 per cent last month), which was the lowest reading since August 2022, and well down from the December highs.
Source: ABS
And here is the corresponding graph:
Source: ABS
Commodities now plunging
Moreover, commodity prices are coming under some severe pressure now, after last year’s bonanza run.
Crude oil prices have dropped back from above $120 to just a tick above $68 at the close today, for example, and there's good reason to expect that the annual inflation contribution from fuel prices should soon be zero.
Australia's thermal coal price has fallen by two-thirds so far in 2023, dropping from highs of above $450/tonne (!) last year to under $150/tonne today - for a 2-year low - so that particular stimulus is dropping off as well.
CommSec reported that global gas prices have also cratered, with Asia LNG prices down from US$70 last year to just US$9.50 mmBtu today, representing an astonishing decline.
Overall, CommSec's daily commodity index is now down by more than 40 per cent over the past year.
There are still cost pressures in the construction sector, with prices up 1.2 per cent over the March quarter, though this was the slowest increase since mid-2021.
New dwelling prices and rents were two of the key contributions to inflation, reported the ABS.
But there are no risks of a wages spiral, with the economy clearly already slowing and the wage price index mustering only a +3.66 per cent growth over the year.
Overall, the inflation figures were at first glance an unpleasant upside print, but it's only one month of figures and looking ahead there's little doubt that inflation will be trending lower.
The Aussie dollar has followed the general downward trajectory, easing to 64.6 US cents today, having traded around 68 cents earlier in May.
