Inflation softer than expected
We're in the midst of a significant reset for housing market sentiment, and one of the ways in which that rebalancing will likely happen will be through interest rate expectations.
This dynamic got a further helping hand today as headline inflation came in at 4.2 per cent over the year to April, quite well below market expectations, and down from 4.8 per cent in March.
Source: ABS
Lower inflation was assisted by the fuel excise cut and rent assistance.
On the other hand housing price inflation (6.3 per cent) remained hot, in the form of electricity, new dwelling costs, and rents (suppressed somewhat by the Commonwealth Rent Assistance).
New dwelling costs rose another 0.7 per cent in the month to be almost 5 per cent higher over the year and in a clear re-acceleration trend, having already experienced a huge run-up over the past few years.
Source: ABS
The annual movement in trimmed mean inflation was 3.4 per cent in April, up from 3.3 per cent in March.
Source: ABS
Overall, futures markets welcomed the softer than expected result, with the Australian 3-year bond yield now trading at 4½ per cent.
Nothing is priced in for June now in terms of policy rate changes, with about a possible 20 basis points worth of hikes priced in for the remainder of 2026, well down from almost 40 basis points before the
weak labour force survey last week.
Source: Bloomberg
Justin Fabo of Antipodean Macro
charted the sharpish repricing in cash rate expectations expectations after the
jobs report, which shows that another hike remains possible in this cycle, if no longer fully priced in.
In other news, residential construction work done fell in the March 2026 quarter, which I'll look at in a
separate post.
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