Core inflation dropped below 3 per cent for the first time since 2021, reinforcing expectations of a May 20 rate cut.
Australia’s core inflation has dropped below 3 per cent for the first time since 2021, reinforcing market expectations of a rate cut at the Reserve Bank of Australia's May meeting.
The latest Consumer Price Index (CPI) data from the Australian Bureau of Statistics, released on Tuesday, shows headline inflation rose 0.9 per cent in the March quarter, leaving the annual rate unchanged at 2.4 per cent.
The more closely watched trimmed mean measure, which strips out volatile price movements, eased to 2.9 per cent annually – down from 3.3 per cent and within the RBA’s 2 – 3 per cent target band for the first time in over three years.
“This is the lowest annual trimmed mean inflation rate since the December 2021 quarter,” said Leigh Merrington, acting head of prices statistics at the ABS.
Still, the result came in slightly higher than most economists had forecast.
Westpac and Commonwealth Bank had both expected quarterly headline inflation to come in between 0.7 to 0.8 per cent for the quarter, bringing the yearly figures down to between 2.2 and 2.3 per cent.
Their estimates for trimmed mean inflation were similarly modest, anticipating a quarterly rise of 0.6 per cent and an annual figure of 2.8 per cent.
Markets were already betting on a 25 basis point cut prior to the CPI release, but the latest figures – combined with easing services inflation and an uptick in unemployment – have strengthened the case for a shift in monetary policy.
As of yesterday, 62 per cent of cash rate futures traders were pricing in the possibility of a 50 basis point cut when the RBA meets on May 20.
Speaking to reporters on Wednesday, federal treasurer Jim Chalmers called the CPI slowdown a signal of progress in the fight against inflation.
“The market is expecting somewhere between four and five additional interest rate cuts this year," he said on Wednesday.
"If that eventuated, that would deliver hundreds of dollars every month to Australians with a mortgage.”
“I’m not making a prediction about that, but the market has a very firm view that there are more interest rate cuts on the way, and I don’t see anything in these numbers that would substantially alter their expectations."
Despite the moderation in aggregate inflation, some costs are proving to be more stubborn.
Electricity prices surged 16.3 per cent over the quarter, driven nationally by the expiry of Queensland’s $1,000 rebate and reduced federal subsidy impacts.
Education costs also jumped 5.2 per cent, while food and non-alcoholic beverages rose 1.2 per cent, with fresh produce and eggs fingered for the increase.
Grocery prices, as tracked by private sector indices, remain more than 5 per cent higher than a year ago, with items such as coffee and poultry showing double-digit annual rises.
The RBA now faces a delicate balancing act: determine how to reward the inflation progress with rate relief, all while monitoring sticky price categories and the lingering impact on household budgets.
