Investing.com -- Australian consumer price index inflation rose more than expected in April amid stubbornly high fuel and housing prices, likely inviting more interest rate hikes by the Reserve Bank in the coming months.
Australian CPI rose 6.8% in the year to April, data from the Australian Bureau of Statistics (ABS) showed on Wednesday. The figure was more than expectations for a rise of 6.4%, as well as the prior month’s reading of 6.3%.
The ABS noted that higher automotive fuel prices, particularly after the halving of a fuel excise tax last year, were among the biggest contributors to the increase in inflation. But other factors such as higher housing, food, and transport prices also pushed up overall inflation.
Rent prices in particular have shot up over the past year, tracking a rise in mortgages as the RBA hiked interest rates. Demand has also greatly overshot supply in the renting market.
Wednesday’s hot inflation reading comes just hours after RBA Governor Philip Lowe warned that persistent inflation will likely result in higher interest rates and unemployment.
While Australia’s job market has remained a key bright spot for the economy, it has also contributed to increased inflation. The RBA is targeting some cooling in the space, with unemployment forecast to increase in the coming months.
Wednesday’s CPI reading also showed that inflation had little inclination of coming within the RBA’s 2% to 3% target in the near-term. But the reading still remained lower than an over 8% peak hit in December.
The Australian dollar sank 0.2% after the reading, also coming under pressure from a stronger greenback and concerns over China.
The RBA hiked interest rates by more than 300 basis points over the past year, and recently signaled a more data-driven approach to further hikes, as economic growth cooled under rising rates.
But with inflation now moving back towards 30-year highs, the central bank is likely to tighten monetary policy further, given that it has stated curbing inflation as its primary objective. The bank had unexpectedly hiked rates in early-May, and is set to hold a meeting to decide on policy next week.