Economic Update - April 2026

The two-week ceasefire for the Iran war became indefinite, according to the US, while the blockade of the Strait of Hormuz was doubled. Markets reacted to daily social media posts from President Trump and Iran with their own rhythm. Central banks are postponing rate hikes until they have to. Australia is the exception, having already raised rates twice this year because of strong demand pushing up inflation.

What happened in Australia?

As expected, the Iran war has poured gasoline on Australia’s inflation. Monthly inflation increased from 3.7% in February to 4.6% in March compared to a year earlier. Transport increased by 9.2% in the month and 8.9% over the year (see chart below).

The trimmed mean, trimmed out the jump in fuel prices and showed monthly inflation steady at 3.3% over the year. The quarterly trimmed mean, the RBA’s favourite measure, showed inflation increasing from 3.4% in December to 3.5% in the March quarter. This is still too high and moving in the wrong direction. (As we know, the RBA raised interest rates again by 25 basis points to 4.35% on 05/05).

As for fuel prices, the RBA could look past a temporary spike, but the longer the war goes on, the more fuel and fertiliser prices bleed into other goods and services. Keeping inflation expectations in check is also critical.

However, fuel prices are not even the government’s main concern at the moment, fuel supply is. Prime Minister Albanese spent much of April travelling to several East-Asian and ASEAN countries to sure up supply. While no formal agreements were struck, Australia assured its neighbours that LNG would continue to flow from Australia without government interference and hoped that they would similarly keep fuel and oil flowing to Australia.   

“We understand Australia’s commitment to continue to ship the LNG we procure to Taiwan. On the same token … we will also commit our supply of those refined oil products to Australia,” Douglas Hsu, Taipei Economic and Cultural Office in Australia, chief representative.

A 12-hour fire at one of Australia’s two oil refineries saw the Prime Minister return quickly from a trip to Malaysia, but the damage was less than first feared and the impact on Australia’s overall fuel supply will be minimal.

Australian agriculture and mining is dependent on diesel. Diesel reserves are low by international standards, but so far have remained steady through the crisis.

However, despite the frantic work by the government, consumer confidence plummeted in April to its lowest levels since the pandemic (see chart below). The RBA will want to see if this translates to lower spending.

BHP and China’s single-desk resources buyer China Mineral Resources Company have agreed on new iron ore contracts, ending the standoff that began in September last year.

China is trying to push back against the major iron ore miners after a decade plus of market dominance by the miners.

While the details of the new contracts are secret, suggesting that China did not get all its own way, leaks suggest that BHP has allowed a yuan-based price index to be added to the basket of indices used for pricing iron ore. 

On the AI front, Australian data centre provider NextDC issued a 100-year, AUD 1 billion bond and Microsoft announced an AUD 20 billion investment in local data centres. The CEO of Anthropic also met the PM at the start of the month. 

May brings the federal budget, and it should be an interesting one with the government foreshadowing changes to the capital gains tax and much-needed cuts to the burgeoning National Disability Insurance Scheme. A focus on increasing productivity would be welcome.

What happened around the world?

USA

Non-farm payrolls rebounded strongly in March, beating all estimates to increase by 178,000 (see chart below). Unemployment decreased slightly to 4.3%. It appears the US labour market is not as weak as thought.

On the other side of the federal reserve mandate, the Fed’s preferred inflation measure PCE increased from 2.8% in February to 3.5% in March over the year (see chart below). PCE excluding food and energy increased from 3% to 3.2% over the same time period.

In his last FOMC press conference as Fed Chair, Jermoe Powell cited the solid labour market and economy. He signed off with another hold on the federal funds rate, much to Trump’s chagrin. Stephen Miran voted for a 25 bps cut.

A day later, GDP results for the March quarter were released and showed a rebound in economic growth, 2% annualised, albeit underpinned by continued investment in data centres (see chart below). Consumer spending increased 0.9% in March.

China

Chinese GDP rebounded to 5% in the March quarter over the year (see chart below). Industrial output led the way, while consumer spending remained subdued. Exports decreased 2.5% in March.

Official manufacturing PMI showed a small decrease in April but remained in positive territory, while private manufacturing PMI data showed the strongest result in five years.

China’s Producer Prices Index increased for the first time in over three years as the war in Iran drove up costs for Chinese producers (see chart below). China is not immune to the war and the increase in the PPI will feed into national inflation figures around the world.

EU

Euro area inflation increased from 2.5% in March to 3% in April, with energy prices being the main driver (see chart below).

Euro area GDP increased by 0.8% in the March quarter over the year, down from 1.3% in the December quarter.

Unsurprisingly, the ECB kept interest rates on hold.

Japan

Inflation excluding fresh food increased for the first time in five months from 1.6% in February to 1.8% in March. However, the BoJ kept rates on hold when it met in late April, citing concerns over the economic impact of the Iran war. In a split, six members voted to hold while three voted for a 25 bps increase.

“I believe there is a possibility that we could raise interest rates if price risks worsen and a major downturn is avoided,” Kazuo Ueda, Bank of Japan, governor.

Exports increased 11.7% in March, rebounding from 4% in February; February was impacted by the Lunar holiday in China. The war in Iran has yet to show up in exports.

 Consumer spending decreased for the third-consecutive month (see chart below).

UK

The BoE kept rates on hold in April. Inflation increased from 3% in February to 3.5% in March over the year. Transport inflation  increased from 2.4% in February to 4.7% in March.

GDP increased at 0.5% over the month in February, with January revised up to 0.1% from flat (see chart below). The strength of the February result is, however, overshadowed by the war in Iran, which will show in the March release.

“This shock will induce a trade-off between higher inflation and softer output, and the appropriate policy response is state-contingent … For now, the softer real economy makes it appropriate to maintain Bank Rate.” Andrew Bailey, Bank of England, governor.

New Zealand

Th RBNZ kept rates on hold at its April meeting. Inflation was flat at 3.1% in the March quarter over the year.

“Since the February Monetary Policy Statement, events in the Middle East have materially altered the outlook and the balance of risks for inflation and economic growth in New Zealand. In the near term, inflation is expected to increase and the economic recovery to weaken.” Monetary Policy Review media release, 8 April 2026.

What this means for Australian Private Debt

Australia stands out with its strong domestic demand and rising interest rates. Tighter financial conditions and higher fuel prices should bring demand down, but hopefully not too much. At that point, the RBA will have the space to cut rates as needed. Elsewhere, weaker demand will become weaker, and central banks will resist interest rate rises until the threat of rising fuel prices and rising inflation expectations force their hand. All hope the war will end soon.