Australian inflation pressures were nowhere to be seen last month

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It’s not only the Australian Bureau of Statistics’ consumer price inflation report that suggests disinflationary forces in Australia are building.

According to the latest Melbourne Institute inflation gauge for April, prices rose by 0.1% in April after falling in February and March, leaving the annual increase at just 1.5%.

It was the weakest annual increase since June last year, and down from 1.7% in March.

According to the survey, costs for medical and hospital services (+3.5%), automotive fuel (+3.7%) and fruit and vegetables (+3.4%) recorded the largest increases for the month, helping to offset falls in holiday travel and accommodation (-4.3%), insurance and financial services (-0.4%) and household furniture & equipment (-0.2%).

Prices for tradable goods and services — those exposed to international factors — rebounded by 0.5% after two consecutive declines, leaving the annual change slightly firmer at 2.2%.

That was offset by a decline of 0.2% in non-tradable prices — or those influenced by domestic supply and demand — with the annual rate of increase decelerating sharply to 1.0% fro 1.5% in March.

Excluding volatile items such as fuel, fruit and vegetables, prices fell by 0.1% for the month, seeing the annual increase slow to 1.9%.

The weak private-sector inflation report mirrored that seen in the ABS’s March quarter CPI report released last week which revealed core inflation grew at the slowest pace on record in the 12 months to March.

The reading, described by some as “incredibly weak”, saw the odds of a 0.25% rate cut from the RBA in May spike to above 50%, a level it continues to oscillate around today.

In a survey of 24 economists polled by Bloomberg, ten are forecasting a rate cut on May 3, a significant increase compared to prior surveys.

While a slim majority believe the RBA will leave the cash rate at 2.0% in May, that isn’t the case in the second half where those expecting a rate cut, or two, outnumber those who think policy will be left unchanged.

By the December quarter, fourteen are forecasting that the cash rate will be below 2.0%, with seven predicting that it will sit at 1.5%. Nine believe that it will remain at 2.0% while one, BT Financial Group, predicts that the cash rate will increase to 2.25%.

The RBA’s May rate decision, along with its accompanying monetary policy statement, will be released tomorrow at 2.30pm AEST.

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