Australia’s inflation rate slowed to 4.2 per cent in April, landing below the 4.4 per cent consensus and easing pressure on the Reserve Bank of Australia before its June meeting. Money markets cut expectations of another rate increase to a 6 per cent probability after the data, with only 0.20 percentage points priced in for the rest of the year.
The headline figure gave markets a quick lift. The S&P/ASX 200 Index closed up 59.90 points, or 0.7 per cent, at 8717.70 on Wednesday, with 10 of the 11 benchmark sectors higher. Interest-rate sensitive tech stocks and miners led the gains, while traders also reacted to signs that the inflation pulse had softened more than expected.
Rob Taubman said inflation was “probably a bit better than markets had fears,” adding that this had slightly amended interest-rate expectations. He also pointed to tax changes proposed in the federal budget as another factor that could weaken demand. His view matched the way investors treated the numbers: as a relief, but not as proof that the pressure has gone away.
That is because the Reserve Bank’s preferred gauge still ran hot. The trimmed mean, which strips out volatile items and is watched closely by policymakers, rose 3.4 per cent, leaving the bank with a reason to stay cautious even as headline inflation cooled. The softer April reading was helped in part by a temporary reduction in the fuel excise, a factor that lowered the headline number without changing the broader pricing picture.
That split showed up across the market. NextDC rose 3.8 per cent to $15.20 and Megaport climbed 8.6 per cent to $14.98, while BHP advanced 1.5 per cent to $61.28 and South32 gained 3.5 per cent to $4.79. Commonwealth Bank edged up 0.3 per cent to $164.81, but ANZ slipped 0.3 per cent to $35.57 and National Australia Bank fell 0.6 per cent to $37.75. Westpac lost 0.6 per cent to $36.39 after the federal court ordered it to pay a $26 million penalty for financial hardship failures.
ASX Ltd was the day’s sharpest faller, plunging 9.7 per cent to a 10-year low of $46.06 after already dropping 13.3 per cent on Tuesday. Analysts downgraded the exchange operator after it flagged a sharp increase in its cost base for the coming financial year. Endeavour Group also fell, sliding 4.9 per cent to $2.93 after announcing plans to sell most of its vineyard and winery assets and target $300 million in cost savings.
Taubman said there is “undoubtedly a lot of caution within Australian equity investors” amid profit adjustments, the federal budget, inflation and rates, and that this is showing up in lower volumes. The immediate market reaction suggests investors think the April inflation data buys the RBA some room in June, but the trimmed mean tells a different story: price pressure is easing, not disappearing.
