A private measure of Australian inflation hit new highs in April as households paid more for health, fuel and rent, keeping upward pressure on interest rates just a day before a central bank policy meeting.
The TD Securities-Melbourne Institute monthly inflation gauge rose 0.5 percent in April, after a 0.4 percent increase in March. Annual inflation accelerated to 4.3 percent, the highest in the five-year history of the series and well above the Reserve Bank of Australia's (RBA) 2 to 3 percent target band.
"This is a truly shocking result," said Joshua Williamson, a senior strategist at TD Securities. "With inflation accelerating in April, we are tempted to change our view that the next move in Australian interest rates is down," he added. "Certainly a rate cut before year end is looking an increasingly remote possibility as inflation remains at a level well above the RBA's target."
The central bank holds its monthly policy meeting on Tuesday and the market has been pricing in little risk of a further hike in the cash rate after March's increase to a 12-year peak of 7.25 percent triggered a slump in consumer demand.
Yet official figures for the first quarter had also shown core inflation jumping to a 17-year high of 4.2 percent, putting the RBA in a tough spot.
"The RBA Board meeting tomorrow will view this monthly inflation result with huge anxiety as it suggests inflation is threatening to be the biggest problem confronting the economy in many years," said Williamson. "The trick for the RBA will be in balancing the already significant tightening of financial conditions and a slowing economy against the possible need for higher interest rates," he added.
Commercial banks have raised borrowing rates even further to cover increased funding costs from the global credit squeeze.
Contributing most to inflation in April were price rises for health services, rental accommodation, financial services and automotive fuel. Cost of fuel for the twelve months to April climbed by 12.6 percent, while the price of rental accommodation rose by more than 12 per cent.
The rises were partially offset in April by falls in the prices of vegetables, and audio, visual and computing equipment.
Excluding volatile items like fuel, fruit and vegetables, the inflation gauge rose 0.5 percent in April. The annual pace picked up to 3.9 percent, from 3.3 percent in March.
The trimmed mean index, a measure of underlying inflation, jumped 0.6 percent in April, taking the annual rate to 4.3 percent from 3.8 percent.