April’s inflation numbers sent mixed signals

Overview

• April’s inflation reading reported a fall in the headline rate alongside a slight increase in underlying inflation as measured by the monthly version of the trimmed mean measure. The mixed messages haven’t changed market assessments that the RBA will likely keep monetary policy on hold next month.
• The March quarter 2026 numbers on private capital expenditure highlight the increasingly significant role played by data centre investment.

While global economy watchers continue to struggle to extract a signal from the ongoing noise around the war in the Middle East – talk of progress in negotiations alongside new US strikes on Iran dominated this week’s headlines – the main data drop on the domestic front was the April Consumer Price Index (CPI) reading. Headline CPI inflation surprised to the downside, with the annual rate falling from 4.6% in March to 4.2% last month. Underlying inflation printed in line with market expectations at 3.4%, however, which was up slightly from the March reading of 3.3%.

That set of numbers does little to change last week’s judgement that the Monetary Policy Board (MPB) is likely to vote to leave the cash rate target unchanged at 4.35% at its next meeting on 15-16 June. Consistent with this, market pricing continues to see only a very modest chance of a further dose of monetary policy tightening next month (although one further 25bp rate increase is still expected by year-end). Pausing will give the central bank time to assess the shifting balance of risks around inflation and activity, and – just perhaps – allow time for more clarity to emerge about developments in the Persian Gulf.

We provide a little more detail on the inflation numbers below and also highlight how the ongoing boom in data centre investment is shaping the capital expenditure statistics. This week’s reading and listening roundup includes some further reflections on Budget 2026 and the continuing, heated debate around tax settings.

Finally, just a quick mention that I will be delivering the AICD’s annual national economic update on 11 June.

Headline inflation down but underlying inflation up

The headline monthly Consumer Price Index (CPI) rose 0.4% over the month in April 2026 (original basis) to be up 4.2% over the year. That marked a slowdown from the March result, when the corresponding monthly and annual rates of increase were 1.1% and 4.6%, respectively. It was also a softer reading than the market had expected, with the consensus forecast having predicted 0.6% monthly and 4.4% annual outcomes.

The slowdown in inflation was in large part a product of government policy in the form of the three-month-long cut in the fuel excise tax from 56.2 cents/litre to 20.6 cents/litre, which took effect from 1 April. That policy change saw automotive fuel prices drop 7% over the month after having jumped by 32.8% in March. Their annual rate of increase also slowed, falling from 24.2% in March to 18.6% in April. Lower fuel prices meant that the Transport Group overall fell 2.7% over the month while the corresponding annual growth rate eased from 8.9% to 6.6%.

Lower fuel prices likewise contributed to a slowdown in the rate of goods price inflation (down from 5.5% the previous month to 4.7% in April) and in annual tradables inflation (down from 4.5% to 3.2%). Services inflation also edged lower last month, slipping from an annual rate of 3.6% to 3.5%. On the other hand, non-tradables inflation ticked up from 4.6% to 4.7%.

While the annual rate of headline inflation eased in April, underlying inflation as measured by the monthly version of the trimmed mean increased relative to the March result. The series was up 0.3% over the month (seasonally adjusted) and 3.4% over the year, compared to March monthly and annual readings of 0.2% (revised) and 3.3%, respectively. Those numbers were also in line with the consensus forecasts.

Other measures of underlying inflation painted a mixed picture. The weighted median series, for example, rose 3.5% over the year in April, unchanged from March, while the annual rate of increase in the CPI ex volatiles and holiday travel measure slowed to 3.9% in April from 4.1% in March.

Overall, the headline April numbers show that the government’s policy intervention has worked to limit the immediate increase in the headline rate and thereby delivered a better-than-expected result. At the same time, however, underlying inflation as measured by the monthly version of the trimmed mean did increase, moving slightly further away from the top of the RBA’s target band. On balance, none of this is likely to be enough to materially shift the central bank’s inflation assessments before next month’s MPB meeting. Financial markets seem to agree, with the implied market probability of a rate hike in June still at very low levels.

Australia’s data centre investment boom gathered pace last quarter

Total new private capital expenditure (capex) in Australia rose 6.5% (seasonally adjusted) over the March quarter 2026 to be up 14.6% over the year. By subcomponent, the ABS said the increase was driven by capex on equipment, plant, and machinery, which surged 18.1% quarter-on-quarter and jumped 31% year-on-year to reach a new record. In contrast, spending on buildings and structures fell 3.8% over the quarter and was up just 0.8% on an annual basis.

The Bureau attributed the March quarter’s robust growth in capex to investment in data centre equipment, specifically server racks and processing equipment. According to the ABS, investment in machinery and equipment by the Information, media and telecommunications sector soared by 196.1% last quarter, sending overall investment by the sector up 96.1% to hit a new record level.

The quarterly decline in total private capex on building and structures, on the other hand, was largely due to projects reaching completion, with the Bureau noting that investment in data centre building construction continued to grow.