AUSTRALIA’S inflation came in faster than expected in the first three months of 2024, suggesting price pressures are proving sticky and reinforcing the case for the Reserve Bank of Australia (RBA) to hold interest rates at a 12-year high next month.

The consumer price index (CPI) advanced 3.6 per cent from a year earlier, coming in above economists’ estimate of 3.5 per cent, data from the Australian Bureau of Statistics showed on Wednesday (Apr 24). A closely watched core inflation gauge – the trimmed mean – rose 4 per cent, also exceeding forecasts.

The RBA targets inflation of 2 to 3 per cent, aiming for the midpoint.

Money markets wound back pricing for RBA easing this year, with the yield on policy sensitive three-year bonds up nine basis points to 3.94 per cent. Swaps traders are pricing a less than one-third chance of a rate cut in December from about a two-in-three chance prior to the report, according to data compiled by Bloomberg.

The Aussie dollar climbed 0.5 per cent to 65.21 US cents immediately after the release.

Australian policymakers have expressed concern about the stickiness of services prices in Australia and the potential for inflation expectations to become unmoored the longer CPI remains above the RBA’s 2 to 3 per cent target. Wednesday’s figures followed US data this month showing stronger price pressures and spurring concerns that inflation is becoming entrenched.

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Australia’s 4.25 percentage points of rate increases between May 2022 and November 2023 are at the lower end of the global tightening scale, with RBA governor Michele Bullock seeking to slow inflation without choking off economic growth. The CPI report suggests policymakers may have more work to do to cool prices.

Bullock has expressed a willingness to be patient on inflation with the RBA’s forecasts showing CPI will only return to the target range in 2025.

The data follows separate figures this month showing the labour market remained tight. Both reports will feed into the RBA staff’s updated forecasts that will be released simultaneously with the board’s policy decision on May 7.

Micaela Fuchila, a Sydney-based economist at Bank of America said risks to inflation are two-way at the moment.

“Increased geopolitical risks place upside risk on tradable inflation while soft domestic demand is likely to contribute to slower growth in domestic prices,” she said ahead of the data. “The federal budget due to be published in May is likely to have major implications for inflation and consumer spending.”

The CPI report also showed:

• On a quarterly basis, the most significant contributors were education, up 5.9 per cent, health, 2.8 per cent higher and housing up 0.7 per cent.

• Rents continued to increase at the fastest rate in 15 years.

• Meat and seafood prices fell this quarter as increased supply and discounting led to price drops for beef, veal and lamb.

• Annual non-tradable prices, which includes goods and services that are mostly influenced by domestic factors, eased to 5 per cent from 5.4 per cent.

• Annual tradables were significantly lower at 0.9 per cent, compared with 1.5 per cent in the fourth quarter of last year. Deflation there has been seen in imported goods including footwear, clothing accessories, furniture and household appliances. BLOOMBERG