April CPI eases to 4.2%, but core holds firm

InflationA welcome undershoot — with caveats

April CPI rose 0.4%mth to be up 4.2%yr — a step down from March’s 4.6%yr pace and below market expectations of 4.4%yr. In seasonally adjusted terms, prices actually fell 0.1%mth in what is usually a seasonally strong month.

The miss was concentrated in volatile and policy-affected items. Transport fell 2.7%mth (detracting 0.3ppt) as the fuel excise halving and free public transport in Victoria and Tasmania took hold, while holiday travel and accommodation jumped 5.5% on Easter demand.

• Underlying inflation proved more persistent: the monthly trimmed mean rose 0.3%mth, lifting the annual rate to 3.4%yr from 3.3%, though the six-month annualised pace continued to ease to 3.2%.
• Early second-round effects are surfacing. New dwelling purchase costs rose 0.7%mth — the strongest since November 2023 — as project builders lifted base prices to recover fuel surcharges and materials costs. Takeaway food and postal services also showed above-target gains.
• The downside surprise is welcome but not view-changing. With excise relief set to expire in July, Westpac still expects pass-through to be larger and faster than normal, with headline and trimmed mean inflation peaking at 5.0%yr and 4.0%yr respectively in Q3.

Consumer ConfidenceLargely unchanged near historical lows

Capital ExpenditureData centres drive a surprise surge

• Private capex jumped 6.5%qtr and 14.6%yr in the March quarter — the largest quarterly rise since the peak of the mining boom in 2012, blowing past both consensus (1.0%qtr) and Westpac’s top-of-range call (4.0%qtr).
• Machinery and equipment drove the gain, up 18%qtr, led by a 196%qtr surge in information and telecommunications as data-centre investment scaled up. Buildings and structures fell 3.8%qtr. The tech sector is now the second-largest by capex behind mining.
• Spending plans point to continued momentum, with FY2026 estimates implying real capex growth near 10.7%yr. Much of the import-intensive equipment spend leaks abroad, limiting the near-term GDP impulse, while the capex deflator’s fourth straight quarterly fall signals easing cost pressures.

Foreign ExchangeAUD holds 0.71 as hike bets fade

• The Australian dollar is changing hands near 0.71 and tracking toward a monthly loss of roughly 0.5%, reflecting a sharp repricing lower in rate-hike expectations as evidence mounts that the tightening cycle is biting on activity.
• With the cash rate at 4.35% after three hikes this year, the back-to-back downside surprises in April employment and inflation have gutted the case for a June move — market-implied odds have collapsed to just 5%.
• Traders are not pricing the cycle as finished: swaps still assign around 70% probability to one final lift to 4.60% before the end of the year.
• Despite the monthly slide, the Aussie is set for a modest 0.5% weekly gain. Reports of a possible ceasefire extension in the Middle East — including a potential reopening of the Strait of Hormuz — have lifted global risk appetite and lent the currency support.
• Attention now shifts to next week’s data slate, with the final manufacturing PMI read and the Q1 National Accounts due to provide a clearer steer on the underlying health of the economy.

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Sources: Westpac Economics (25 May 2026), ABS (April 2026 CPI; Q1 Capex), ANZ-Roy Morgan. This summary is for informational purposes only and should not be considered financial advice. Always consult a professional before making investment decisions.