Australia’s 10-year government bond yield fell to around 4.8%, its lowest level in eleven weeks, after softer-than-expected inflation data tempered expectations of further interest rate increases. Headline inflation slowed more than anticipated, easing to 4.2% year-on-year in April from 4.6% in the previous month and coming in below the 4.4% consensus forecast. Monthly CPI also decelerated sharply, rising just 0.4% compared with 1.1% previously, reinforcing signs that price pressures are moderating.
However, underlying inflation remains persistent. The trimmed mean measure rose 3.4% year-on-year, matching expectations but staying above the Reserve Bank of Australia’s 2–3% target range. This divergence between easing headline inflation and still-elevated core inflation underpins a cautious policy outlook, as the central bank weighs the risk of cutting too soon against the need to support growth.
Even so, the latest figures were broadly interpreted as strengthening the case for the RBA to keep rates on hold at its upcoming June 15–16 meeting. Market participants also scaled back expectations for an August hike, with the implied probability falling from 64% before the data release to roughly an even chance.
