Australian Consumer Price Index (CPI) increased by 4.6% year-on-year in March, coming in slightly below the anticipated 4.8% and marking a significant rise from the previous quarter's 3.7% reading [1]. Despite this moderation, core inflation—as measured by the trimmed mean CPI—remained elevated at 3.3% in March, unchanged from the prior month and still above the Reserve Bank of Australia's (RBA) target range of 2% to 3% [1].
The first quarter's trimmed mean inflation registered at 0.81% quarter-on-quarter, which was about a tenth softer than market expectations [1]. However, Deutsche Bank analysts noted that persistently high oil prices in the second quarter could limit comfort from the softer core inflation print [1].
Market reaction was evident as yields on three-year Australian government bonds, which are sensitive to policy expectations, fell by 4.5 basis points to 4.68% at the time of reporting [1]. Additionally, futures-implied odds of an RBA rate hike at the upcoming meeting dropped by 15 percentage points to 68%, reflecting the market's reassessment of the likelihood of further tightening in light of the softer inflation data [1].
CONCLUSION
The softer-than-expected Australian CPI print has tempered market expectations for an imminent RBA rate hike, as reflected in lower bond yields and reduced hike probabilities. However, with core inflation still above target and oil prices remaining high, uncertainty persists regarding the RBA's next move.