SYDNEY, May 27 (Reuters) - Australian consumer prices increased by less than expected in April thanks to a government tax cut on fuel, data showed on Wednesday, while core inflation ticked up as higher oil prices fed through to the broader economy.
Data from the Australian Bureau of Statistics showed its monthly consumer price index (CPI) rose 0.4% in April, from the previous month, while the annual pace slowed to 4.2%, from 4.6%.
Median forecasts had been for a rise of 0.6% in the month and an annual
pace of 4.4%.
The trimmed mean measure of core inflation increased by 0.3% in the month, matching forecasts and nudging the annual pace up to 3.4%, the highest since late 2024 and further above the Reserve Bank of Australia's (RBA) target band of 2% to 3%.
The lower-than-expected headline figures pushed the Australian dollar 0.1% lower to $0.7157 and three-year bond futures rallied 5 ticks to 95.49 as markets lengthened the odds of a fourth interest-rate rise from the RBA in August to 40%, from 51% before.
"We expect headline inflation to peak at 4.9% in Q2 before falling below the 3% ceiling of the RBA’s target band in mid-2027," said Harry McAuley, economist for Oxford Economics Australia.
"Considered alongside the jump in the unemployment rate in March, we are firm on our view that the rate hike cycle is on hold."
The RBA has raised interest rates three times this year to 4.35% to head off a war-driven energy shock, fully reversing the amount of policy easing made in 2025. Global central banks have also turned hawkish, with the European Central Bank widely expected to hike rates next month and the Federal Reserve considering dropping its easing bias.
The unemployment rate unexpectedly climbed to a 4-1/2 year high of 4.5% in April, a possible sign that the labour market might be loosening enough to stave off more rate hikes. Markets are pricing in one more to a peak of 4.6% after the RBA said it has now got space to assess how the Iran war plays out.
The U.S. has struck boats and missile sites in Iran as Tehran accused Washington of violating a fragile ceasefire in place for nearly seven weeks. Shipments through the Strait of Hormuz - which carries 20% of the world's oil and gas - have slowed to a trickle.
Wednesday's report showed automotive fuel prices fell 7% in the month after jumping 32.8% previously, as the government halved the fuel excise from April.
Higher oil prices were feeding through to products and services with high freight and logistics costs. Prices for postal services jumped 12.4% and those for new dwelling constructions gained 4.7% from a year earlier.
(Reporting by Stellla Qiu and Wayne Cole; Editing by Muralikumar Anantharaman and Shri Navaratnam)
