AUD: Inflation shock keeps RBA under pressure – Commerzbank

Commerzbank’s Volkmar Baur notes Australian CPI slowed on a monthly basis but remains above the Reserve Bank of Australia’s (RBA) 2–3% target. He stresses that surging Oil and gasoline prices, plus fertilizer-related risks to agriculture and food costs, mean inflation pressures will intensify, making another RBA rate hike more likely at the 5 May meeting if the conflict persists.

Oil and food risks threaten CPI path

"Seasonally adjusted prices in Australia rose by only 0.22% month-over-month last month, placing the annualized rate below the upper end of the Reserve Bank of Australia’s target range."

"The annual rate thus fell to 3.7%, but remains above the central bank’s target range (2–3%). In particular, sharply rising housing-related costs are now weighing on inflation following the final expiration of subsidies, just as the next price shock is looming."

"Currently, gasoline prices in Australia are about 22% higher than the previous month’s level, which — given a 3.5% weighting in the consumer price index basket — will on its own lead to a 0.7 percentage point increase in the CPI next month."

"And those are just the direct effects. Australian agriculture is heavily dependent on fertilizer imports, the global availability of which is currently also suffering due to the Iran conflict. Reports are therefore already circulating that a shortage of fertilizer will lead to less wheat being planted, which is likely to result in higher food prices later on."

"The situation therefore remains difficult for the Reserve Bank of Australia. Much will depend at the next meeting on May 5 on whether the conflict is still ongoing. If so, another hike in the key interest rate is more likely than not."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)