Why is the CBA share price setting a new all-time high today?

Australia's biggest bank just became more expensive. What is driving the demand?

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A woman in a bright yellow jumper looks happily at her yellow piggy bank representing bank dividends and in particular the CBA dividend

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The Commonwealth Bank of Australia (ASX: CBA) share price is the only Big Four bank solidifying a fresh all-time high today of $122.55, up 2.1%. That's despite other banking majors outpacing the return on CommBank shares.

While many analysts have repeatedly labelled Australia's largest bank as 'overvalued' or 'extremely expensive,' the rally continues — a rally that began in November last year and tracked along a largely uninterrupted trend until last month.

Undeterred, CBA shares have bounced back, reaching this new price milestone.

However, the Aussie bank reported a 5% slump in its unaudited statutory net profit after tax only a week ago. So, how does the CBA share price set a record high soon after that dreary news?

Budget keeps the good times rolling

The Commonwealth Bank of Australia has not made a price-sensitive announcement since its March quarter trading update. Hence, there is no new information to instigate increased buying of CBA shares today.

Lacking any company releases, we must broaden our search on what might influence investors' appetite.

On Tuesday, the Government released the 2024-25 Australian Federal Budget. How the Federal Government plans to spend its money can have meaningful implications for the economy and Australian businesses.

Perhaps investors believe some planned budgetary expenditures will benefit CommBank and its peers. After all, banks tend to perform better throughout economic growth than retraction. As such, the $300 energy bill relief for every household might be seen as oil for the economic wheel.

Likewise, additional tax relief for low and middle-income earners suggests less economic pressure. Less pressure could mean CBA won't be whacked with a substantial rise in arrears, a common side effect of increased unemployment due to a softening economy.

In CBA's trading update last week, cost-of-living pressures were highlighted as a cause of increasing arrears. At that time, management noted its expectation of further worsening arrears during the coming months.

Post-budget, those fears may be somewhat allayed for shareholders.

Inflation and the CBA share price

Nearly everyone wants a well-coordinated 'soft landing' as interest rates stifle inflation. The danger for the economy — and banks — is an overly restrictive monetary policy that tightens too far. That's why investors welcome recent news about inflation in Australia and the United States.

Last night, US monthly inflation was 3.4%, down from the 3.5% reported for March. Likewise, Australia's treasurer, Jim Chalmers, forecasts Australia's inflation rate will fall below 3% before the year ends.

It paints a rosy picture of the future.

Bank share investors might be seeing the dark clouds lift. As a result, improved optimism is likely flowing through to the CBA share price.

Shares in the Aussie bank have risen 25% over the past year. It currently trades at a price-to-earnings (P/E) ratio of 20 times earnings.

Motley Fool contributor Mitchell Lawler has positions in Commonwealth Bank Of Australia. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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