Buying ASX shares and wondering what the latest inflation data means for interest rates and the broader stock market investment outlook?
You're not alone!
Earlier today, the Australian Bureau of Statistics (ABS) reported that Consumer Price Index (CPI) rose 4.2% in the 12 months to April, down from the 4.6% increase reported in March.
Of some concern however, trimmed mean inflation increased to 3.4% for the 12 months to April, up from 3.3% last month.
That's important because trimmed mean inflation, which takes out certain volatile items, is the Reserve Bank of Australia's preferred gauge when it comes to making its interest rate decisions.
As you're likely aware, the RBA has hiked interest rates at all three of its meetings in 2026. That sees the official cash rate back at 14-plus-year highs of 4.35%.
And the combination of higher rates and resurgent inflation has pressured many ASX shares, as witnessed by the 1.6% year to date decline in the All Ordinaries Index (ASX: XAO).
So, what does the latest inflation print really mean?
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Will ASX shares get some interest rate relief?
I won't shine you on.
It's highly unlikely that we'll see the RBA lower interest rates at its next meeting on 16 June.
But we may well see the central bank keep rates on hold at that meeting, which after three consecutive rate increases should offer some relief to ASX share investors.
Commenting on the RBA's inflation conundrum, Josh Gilbert, lead analyst for APAC at eToro, said:
Ultimately, that trimmed inflation number has been stubbornly above the top of the 2% to 3% target band for longer than anyone is comfortable with, and until that breaks decisively lower, the RBA can't claim the job is done.
Deloitte Access Economics partner Stephen Smith said (quoted by The Australian Financial Review):
Underlying inflation rose to 3.4% over the year. That remains well above the Reserve Bank's target band and points to a more persistent inflation problem than headline CPI alone suggests.
Even if the Strait of Hormuz reopens soon, global energy markets will take time to stabilise. The immediate shock may fade, but the pass-through to freight, production costs and consumer prices will take longer.
Deloitte expects ASX share investors will see the RBA pause at its June meeting and then likely hike rates by another 0.25% in August.
Commenting on the uptick in trimmed mean inflation, BDO chief economist Anders Magnusson added:
This will be uncomfortable for the RBA and limits its scope to 'look through' the energy shock as a temporary disruption that will just roll by. The recent lift in unemployment suggests that higher interest rates may be starting to slow demand, but that is less meaningful if inflation remains high.
