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Australian CPI inflation increased 1% in the March quarter to reflect 3.6% for the quarter year-on-year. 

The ASX200 fell into the red 15 minutes after the data was released, but at lunchtime, was up nearly 0.2% – suggesting the market overreacted. 

The Q1 data still marked a decline from 4.1% inflation in the December quarter, showing that Australia’s disinflation trajectory remains on track.

The ABS did note, however, that prices for most goods and services “continued to rise.”

While housing remains a significant pressure at +0.7% inflation, education and health were the biggest quarterly contributors at +5.9% and +2.8% respectively.

Oxford Economics macro chief Sean Langcake described a “sharp” 0.9% increase quarter-on-quarter, but noted that the pace of inflation continues to slow.

Still, pressures remain, which could offset any immediate enthusiasm the RBA would take from the data.

“While this is welcome and important to the RBA in keeping expectations in check, it is more reflective of base effects,” Langcake said.

“The signal in today’s data is that at present, cost pressures remain elevated and broad in the economy.

“Underlying inflation increased by 1% q/q, and all groups in the CPI saw prices increase in the quarter with the exception of communications.”

Broadly, services are where inflation remains stickiest, which has been the case for about two years now.

Langcake pointed towards labour cost growth as the biggest factor driving inflationary pressure in education and health services.

But it remains the case that Australia’s housing crisis is overall perhaps the biggest threat to CPI meeting the RBA’s 2-3% target band range.

“Rents remain a strong source of underlying inflation pressure, increasing by 2.1% q/q. Without the subsidies that were present the past two quarters, underlying pressures generated by very low vacancy rates in major cities have flowed through to the CPI,” Langcake added.

“We expect this pressure will persist through much of 2024.”

ANZ recently reiterated its belief we will see the first RBA rate cut in November. 

But with the ASX200 gaining over +0.25% at 12.10pm, it the market appears to be retaining a positive outlook for Australian equities.

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