Inflation is rising again, and that's a problem for both the government and the Reserve Bank.
It's rising because some once heavily discounted items in the shops, former Treasury economist Warren Hogan says, aren't being so heavily discounted any more.
"One of the reason inflation's fallen in the past year is because goods prices have been coming off and, in fact falling in recent times."
"They've [now] jumped right back up."
Bread and cereal products, for example, rose 5.1 per cent in the year to April.
And fruit and vegetables rose 3.5 per cent.
At the same time, says Warren Hogan, the cost of services -- including rents, healthcare, banking and insurance, and education, remain elevated.
"So we're no longer talking about inflation that's falling back towards target."
"It's questionable whether it's even sticky.
"It looks like it could be picking up in 2024," Warren Hogan says.
Bumpy inflation data
It's important to note that the Bureau of Statistics' monthly inflation data is known to be a little bumpy.
However, crucially, the core, or underlying, measures of inflation published Wednesday also show inflation is not just stalling but picking up again.
The trimmed mean measure, for example, which looks at inflation without or the ups and downs, rose from 4.0 per cent to 4.1 per cent over the 12 months to April.
There's no doubt shoppers have tightened their purse strings.
It's clear, however, there's still plenty of money being pumped into the economy and this is lifting what economist and the Reserve Bank call "aggregate" or overall demand.
"The reality is there's a huge amount of investment spending going on: infrastructure boom outside of mining and across the easter seaboard; the need to build new dwellings."
"Demand in the economy, overall, is too strong.
"At the moment consumers are the ones copping all the pressure from the income tax burden, from interest rates going up, inflation, consumption is soft, but everything else is doing OK," Warren Hogan says.
Shadow Treasurer Angus Taylor described the ABS data as a "shocking set of numbers."
"The point here is the pain that every Australian household is feeling now."
"They are continuing to pay more for their groceries.
"They're continuing to pay more for their housing, whether they own it with a mortgage or they're renting," Mr Taylor said.
Battle to tame inflation
Rental price inflation rose 7.5 per cent in the year to April, down from 7.7 per cent in the year to March.
The Treasurer, Jim Chalmers, concedes the battle to tame inflation is not yet won.
"We know there is more work to do in the fight against inflation because it is still too high and people are under pressure and that's why the Budget had such a big focus on providing responsible cost-of-living relief."
But for the millions of mortgage borrowers across the country, especially those with large monthly repayments, what does this mean for the Reserve Bank and its monetary policy?
Warren Hogan thinks Wednesday's inflation data will push the RBA into hiking interest rates at its June meeting.
"The higher inflation result today I think will tip them over the edge and I think there's a very good chance we'll see a rate hike in June."
"The inflation picture is deteriorating, not getting better.
"Look I think [another RBA interest rate hike] will just take some demand out of the economy.
"It does raise an interesting and important question: whether one rate hike is enough to actually be meaningful?
"It'll obviously do a lot of damage to households that have got large mortgages and significant mortgage repayments.
"There is a broader strength of demand.
"Maybe there needs to be two more rate hikes," Warren Hogan said.
AMP's deputy chief economist Diana Mousina disagrees and has held onto her view the Reserve Bank will cut interest rates in November.
Why? Well she doesn't think today's inflation numbers will surprise the RBA.
"At their last meeting they said that unless inflation was moving out of its forecast that it was happy to keep interest rates where they were."
"And the April inflation data was basically in line with the Reserve Bank's forecast.
"They think that inflation's going to be running at 3.8 per cent," Diana Mousina said.
Diana Mousina says it would be difficult to justify an RBA interest rate hike amid weak economic growth.
"The unemployment rate went up more than expected."
"[There's] very weak retail data, and the GDP result for next week is going to look pretty soft," she said.
Interest rate debate
Perhaps this comment from senior Marcus Today markets analysts, Henry Jennings, provides some sort of synthesises for the interest rate debate.
"The interest rates will stay where they are for a long while yet," he noted.
"In theory, rates should rise, but anyone who has stepped out from Martin Place into the real world will know that many are doing it really tough.
"A rate increase would be 'courageous Minister' as Sir Humphrey would say.
"Not going to happen."
The Australian stock market fell sharply immediately following the release of the inflation data as investors pushed back their expectations of an RBA interest rate cut in 2024.
The Reserve Bank has also been at pains to emphasise its laser-like focus on inflation expectations.
Put simply, the bank says, the longer inflation stays elevated the harder it is to ultimately get back down.
Inflation becomes entrenched.
So then, what will it take for the inflation rate to get back to the Reserve Bank's target range of two to three per cent?
Well economists expect headline, or short-term, inflation to fall sharply when federal and state government electricity rebates come into effect from July.
But that's also ahead of billions of extra dollars in state and federal government stimulus later this year and the potential for a Fair Work increase in the minimum wage.
The inflation battle appears to be stuck in a tug-of-war.
