Inflation Fell to 4.2% in April. The Number the RBA Watches Went Up.

Australia's annual inflation rate fell to 4.2% in April, down from 4.6% in March. CBA, ANZ, and Westpac all expect the Reserve Bank to hold the cash rate at 4.35% in June. For borrowers who've absorbed three hikes this year, the headline looks like progress.

But the number the RBA pays closest attention to moved the other way.

What happened

The monthly CPI indicator, released by the ABS on 27 May, showed headline inflation dropping 0.4 percentage points. Seven of eleven CPI groups recorded slower annual growth.

Fuel was the main driver. Petrol prices fell 7% in April after surging 33% the month before, pulling transport inflation from 8.9% to 6.6%. Regular unleaded dropped from 228 to 206 cents per litre.

CBA described a June hike as "off the table." ANZ called the result "a little softer than expected." Westpac called it "a downside surprise" but still forecasts two more hikes in August and September.

What the RBA is actually watching

Trimmed mean inflation, which strips out volatile moves like fuel, crept up to 3.4% from 3.3%. That's the measure the Reserve Bank uses to judge whether inflation is genuinely cooling or just being dragged around by temporary swings.

The categories that hit household budgets every month barely moved. Housing inflation sits at 6.3%. Electricity is up 22.5% after state government rebates expired. Health costs rose 4%. Education sits at 4.8%.

Fuel can fall 7% in a month and rise 33% the month before. Electricity bills, rent, and insurance premiums don't work that way. They stick.

Where the banks disagree

CBA and ANZ both see a June hold and a pause beyond it. Westpac sees the same June hold, then two more hikes to 4.85% by September.

Same data. Different conclusions. The disagreement tells you the path from here depends on the next two months of data. June is settled. Everything after it is not.

What to do

The June hold gives borrowers and business owners one predictable month. Use it.

If you're on a variable rate, check what your lender actually charged you through this hiking cycle. Some lenders passed on the full 0.75 percentage points across three hikes. Others absorbed part of it or moved at different speeds. The gap between what different lenders charge for the same type of loan is wider now than it was twelve months ago.

If you're planning a vehicle or equipment purchase, the June hold means the repayment you model today will hold for at least another month. After that, it depends which forecast is right. If Westpac's view plays out, two more hikes would add roughly $45 to $65 per month on a $50,000 loan.

Build your cash flow around the rate you're paying today, not the rate you hope for.

This article is general information only and is not financial advice.