RBA Rate Hike Risk Builds as Fuel-Driven Inflation Causes Discomfort

• Australia’s March CPI was still too high for comfort, with headline inflation rising 1.1% in the month and 4.6% over the year. Fuel was the main driver, jumping 33%, while underlying inflation showed some signs of easing.
• The RBA’s main concern is whether higher fuel prices start flowing through to broader prices from April. For now, the data keeps a May rate hike firmly in play, with the possibility of further tightening if inflation proves sticky.
• The local focus turns to today’s March quarter PPI and manufacturing PMI, with markets looking for signs that higher fuel and input costs are spreading more broadly.
• Global bond yields fell overnight as oil prices eased from recent highs, taking some pressure off inflation expectations. US 10-year yields fell around 5bp to roughly 4.38%, partly reversing the post-FOMC sell-off.
• US growth remains solid, with Q1 GDP rising 2.0% annualised, while core PCE inflation rose 0.3% in March. The BoE and ECB also left rates unchanged, but the broader message from central banks remains cautious on inflation.