Australian Share Market Expected to Open Positively Ahead of Latest Inflation Data Release

Australian shares dip as inflation remains high, complicating RBA's rate cut plans and Treasurer's budget aims to ease cost-of-living pressures.

Geeta Pillai
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Australian Share Market Expected to Open Positively Ahead of Latest Inflation Data Release

Australian Share Market Expected to Open Positively Ahead of Latest Inflation Data Release

The Australian share market is positioned for a positive start on April 24, 2024, as investors await the release of the latest inflation data, according to Tom Piotrowski, a market analyst at CommSec. The S&P/ASX 200 index was up 0.4% in early trading, buoyed by a rally in tech heavyweights on Wall Street overnight.

However, the market quickly pared back gains, falling 0.5% within minutes, after the Australian Bureau of Statistics (ABS) released the Consumer Price Index (CPI) figures for the March quarter. The data showed that the CPI rose 1.0% in the first three months of 2024 and 3.6% annually, remaining well above the Reserve Bank of Australia's (RBA) 2-3% target range.

The most significant price increases were observed in rents (+2.1%), secondary education (+6.1%), tertiary education (+6.5%), and medical and hospital services (+2.3%). While the annual inflation rate has eased from 4.1% in the previous quarter, the higher-than-expected quarterly rise of 1% has put pressure on the ASX 200 as investors re-evaluate the timing and pace of potential interest rate cuts by the central bank.

Why this matters: The stubborn inflation figures highlight the challenge faced by the RBA in bringing inflation back to its target range and add uncertainty around the timing of interest rate cuts. The data also complicates Treasurer Jim Chalmers' calculations as he prepares the government's third budget, which aims to ease cost-of-living pressures for Australians.

Economists are now divided on the RBA's next move, with some pushing back their forecasts for rate cuts to November 2024 or even the first half of 2025. "The RBA is still likely to be concerned about services inflation and non-tradeables inflation, including rents, education, and insurance," said Sarah Hunter, chief economist for BIS Oxford Economics.

Despite the inflation concerns, there are signs of progress, with underlying inflation, which excludes highly volatile items, falling to 4.0% for the March quarter, down from 4.2% in the previous quarter. Treasurer Chalmers called for perspective, noting that inflation has almost halved since the Labor government took office, but acknowledged that it remains too high.

Key Takeaways

  • Australian shares open higher, then fall 0.5% after high inflation data
  • CPI rose 1% in Q1 2024, annual inflation at 3.6%, above RBA's 2-3% target
  • Significant price increases in rents, education, and medical services
  • Inflation data complicates RBA's interest rate decisions and government's budget
  • Underlying inflation fell to 4%, but remains too high, says Treasurer Chalmers