Why did the ASX 200 just plunge on the latest Aussie inflation print?

ASX 200 investors are hitting the sell button following the April CPI data. But why?

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The S&P/ASX 200 Index (ASX: XJO) was already struggling today before the latest Australian inflation data hit the wires.

At 11.30am AEST, the benchmark index was down just over 0.6%.

Then the Australian Bureau of Statistics (ABS) released the April consumer price index (CPI) data.

And the ASX 200 promptly dropped another 0.3% to be 0.94% lower at the time of writing.

Here's why investors are favouring their sell buttons on the heels of the latest Australian inflation figures.

ASX 200 investors eyeing higher interest rates for longer

Most analysts, including the economics team at National Australia Bank Ltd (ASX: NAB), had forecast that April's monthly CPI indicator would decline to 3.4% year on year from the 3.5% annual figure reported last month.

This would have indicated that the Reserve Bank of Australia's series of interest rate hikes commenced in May 2022 was continuing to cool down fast-rising prices.

And it would have signalled that ASX 200 investors might yet expect several interest rate cuts from the RBA this year. The current cash rate stands at 4.35%. That's the highest level since December 2011, and it's up from the historic low of 0.10% in early May 2022.

But in its latest CPI report, which should have been titled 'Don't shoot the messenger', the ABS threw cold water on hopes for multiple RBA interest rate cuts in 2024.

That's because the headline CPI indicator rose 3.6% in the 12 months to April 2024, well above consensus estimates.

Commenting on the uptick that's pressuring the ASX 200 today, Michelle Marquardt, ABS head of prices statistics, said:

Annual inflation increased to 3.6% this month, up from 3.5% in March. Inflation has been relatively stable over the past five months, although this is the second month in a row where annual inflation has had a small increase.

The biggest contributors to price increases in April were housing (up 4.9%), food and non-alcoholic beverages (up 3.8%), alcohol and tobacco (up 6.5%), and transport (up 4.2%).

Electricity prices would have topped this list if not for the introduction of the Energy Bill Relief Fund rebates in July 2023, which could artificially dampen the real level of inflation.

Electricity prices rose 4.2% in the 12 months to April. "Excluding the rebates, electricity prices would have risen 13.9% in the 12 months to April 2024," Marquardt said.

Underlying inflation, which takes out volatile items like fuel, holiday travel, and fruit and veggies, remained steady on an annual basis.

"When excluding these volatile items from the monthly CPI indicator, the annual rise to April was steady at 4.1%," Marquardt said.

She added that "Annual inflation excluding volatile items remains higher than for the monthly CPI indicator."

At 4.1%, that's more than twice the lower level of the RBA's 2% to 3% inflation target range.

With inflation again proving sticky, it's looking more likely that ASX 200 investors will have to wait until 2025 to see the first interest rate relief.

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. 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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