Recent inflation data in Australia has led to increased uncertainty regarding the Reserve Bank of Australia's (RBA) upcoming monetary policy decision. According to Commerzbank’s Volkmar Baur, while headline inflation remains elevated at an annual rate of 4.6%, well above the RBA's target range of 2–3%, underlying measures such as the trimmed mean and services inflation have shown less concerning trends. The trimmed mean inflation rate rose only slightly from 3.4% to 3.5% year-over-year, and services inflation actually eased slightly, suggesting that price pressures may be moderating beneath the surface [1].
Prior to the release of the latest inflation figures, markets were assigning an approximately 80% probability to another RBA rate hike next week, which would have been the third consecutive increase following moves in February and March. However, the softer underlying inflation data has reduced market confidence in this outcome, making the upcoming policy meeting particularly pivotal for the Australian Dollar (AUD) [1].
The transportation component of inflation saw a notable increase, rising 8.9% year-over-year, largely due to a roughly 25% surge in gasoline prices. Despite this, other components of the inflation basket did not show significant upward pressure, reinforcing the view that the RBA may have room to pause its tightening cycle [1].
Commerzbank notes that if the RBA had not already taken action, a rate hike would be warranted as a precaution. However, given the lagged effects of monetary policy—typically around six months—the central bank could opt to leave rates unchanged at the upcoming meeting [1].
CONCLUSION
Softer core inflation data has cast doubt on the likelihood of another immediate RBA rate hike, despite headline inflation remaining above target. The market is now less certain about the central bank's next move, making the upcoming policy meeting a key event for the AUD.