ASX falls sharply after hotter-than-expected consumer price index report

Australian shares slumped on Wednesday after hotter-than-expected CPI numbers renewed inflation fears and narrowed the likelihood of rate cuts this year.

The Australian sharemarket slumped on Wednesday after a hotter-than-expected consumer price index report renewed inflation fears and pushed back expectations of Reserve Bank rate cuts.

The benchmark ASX 200 fell 101.1 points, or 1.3 per cent, to close at 7665.6, while the broader All Ordinaries index slumped 99.2 points, or 1.24 per cent, to 7935.7.

Tech stocks fell 0.65 per cent to 33036.5.

The monthly CPI indicator rose 3.6 per cent in the 12 months to April 2024, the Australian Bureau of Statistics reported in the morning, bucking the consensus forecast of a downward shift from 3.5 per cent in March to 3.4 per cent.

“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,” ABS head of prices statistics Michelle Marquardt said on Wednesday morning.

Betashares chief economist David Bassanese said the print meant interest rates would likely to remain at current “restrictive levels” for an extended period.

“There’s a simmering risk the RBA may feel obligated to raise rates further to reduce inflation in those demand-sensitive areas it can influence, such as discretionary consumer goods and services, to offset the inflationary pressures in non-interest rate sensitive areas,” he said.

“While my base case remains that the next move in official interest rates is likely down, I now anticipate only one rate cut this year, not two, with this cut not taking place until December.

Wednesday’s CPI print has sparked fears the RBA may need to hike rates to tame persistent inflation. Picture: NewsWire / Christian Gilles

“What’s more, there’s at least a 30 to 40 per cent chance that the RBA could raise rates in coming months if the disinflationary process fails to resume anytime soon.”

IG market analyst Tony Sycamore, meanwhile, said the CPI results put in doubt the pace and sustainability of “inflation decline” back to target in a time frame consistent with the board’s strategy.

“The runway for the RBA to deliver households an early Christmas gift in the shape of a December rate cut has narrowed,” he said.

“The rates market is now pricing in just 2bp of rate cuts before year-end.”

All 11 industry sectors ended in the red, with staples leading the way with a sharp two per cent fall.

The big banks fell heavily, with Commonwealth Bank sinking 1.64 per cent to $118.34 per share, Westpac diving 2.36 per cent to $26.01, NAB sliding 1.84 per cent to $33.65 and ANZ slumping 2.45 per cent to $27.87.

The big miners were mixed, as iron ore prices continue to trend lower.

Rio Tinto fell 1.49 per cent to $129.66, while Fortescue plunged 3.55 per cent to $25.57.

BHP ended the day flat at $45.08 per share as the London deadline for The Big Australian’s Anglo American bid drew closer.

In a statement to the ASX before the market close, BHP requested an extension to the deadline “to allow for further engagement on its proposal”.

Australian equities slumped on Wednesday on renewed inflation. Picture: NewsWire / Jeremy Piper

The bourse’s sharp fall followed a mixed night on Wall St, which saw the Dow Jones fall 0.55 per cent to 38,852 points, while the S&P 500 edged up 0.025 per cent 5306 points.

The tech-heavy Nasdaq lifted 0.59 per cent to 17,019.8 points.

In corporate news, insurance giant IAG tumbled 3.12 per cent to $6.21 after law firm Slater and Gordon announced a new class-action lawsuit over how the company calculated and promoted loyalty discounts between 2018 and 2024.

Real estate company Lendlease has struck a deal to sell its US construction business after telling investors on Monday it would simplify its organisational structure and right size its cost base.

Shares in the company fell 2.4 per cent to $6.09.

The top gainer on the ASX 200 was respiratory care company Fisher and Paykel Healthcare, which leapt 3.69 per cent to $26.39 on its 2025 net profit outlook.

The largest laggard was Neuren Pharmaceuticals, which collapsed 9.3 per cent to $20.96.

The dollar gained 0.08 per cent against the Greenback to buy US66.5c at the closing bell.

Originally published as ASX falls sharply after hotter-than-expected consumer price index report