Australia’s inflation rate has edged lower, providing the Reserve Bank of Australia (RBA) with a potential reason to cut interest rates again when it meets on April 1. However, whether this slight dip is enough to prompt a decision remains uncertain.
The Consumer Price Index (CPI) for the 12 months leading to February 2025 showed a modest decline from 2.5% to 2.4%, giving hope to borrowers hoping for some relief. Despite the positive trend, the 0.1% drop might not be significant enough for the RBA to take action just yet. In February, the central bank lowered the official cash rate to 4.10%, but concerns over global uncertainty continue to shape its outlook for further cuts in 2025.
While financial markets have priced in a strong chance of a rate cut in May, most analysts believe that the upcoming March 1 RBA Monetary Policy Meeting will be too soon for such a move. Sarah Hunter, Assistant Governor of the RBA, has pointed to global factors—particularly U.S. policy changes and their impact on inflation—as key influences on the bank’s decision-making process.
The RBA places significant weight on the “trimmed mean” measure of inflation, which also saw a small reduction, falling by 0.1% to 2.7%. The trimmed mean excludes volatile items like food and energy, providing a clearer picture of underlying inflation trends. This measure has been relatively stable for the past three months, signaling a slowdown in inflationary pressures.
Despite these positive indicators, several key sectors have contributed to the CPI increase. The food and non-alcoholic beverages category saw a 3.1% rise, while alcohol and tobacco surged by 6.7%. Housing also rose by 1.8%, indicating ongoing inflationary pressures in some of the economy’s most crucial sectors.
Shane Oliver, Chief Economist at AMP, believes the RBA will likely wait for the more reliable quarterly CPI data before making another rate decision. “It’s doubtful this will be enough to see the RBA ease again at its 1 April meeting,” Oliver said. “The bank is likely to wait for the March quarter CPI data ahead of its May meeting, where we do expect a rate cut.”
The Australian government’s energy rebate program has also played a significant role in reducing inflation, although it is only a temporary measure. The government extended the $150 electricity rebate, which is expected to reduce headline inflation by 0.5 percentage points in the short term. However, the RBA remains cautious, knowing that the rebate is not a long-term solution.
Sally Tindall, Data Insights Director at Canstar, noted that previous rebates did not lead to a surge in consumer spending. Instead, many Australians simply saved the extra funds. Given that the rebate is set to expire after six months, the RBA is unlikely to rely on this temporary relief when making decisions about future rate cuts.
Despite this, there are some signs of improvement in the housing market, with rents increasing by 5.5% over the past year—a slowdown from the previous month’s 5.8% rise. This drop in rent increases is likely linked to higher vacancy rates in capital cities, providing some relief to renters.
In the context of the government’s focus on cost-of-living pressures, the lower inflation figure may offer some encouragement, especially ahead of the release of the federal budget on March 25. However, the RBA’s next move will depend on the broader economic picture, and experts remain divided on whether a rate cut is imminent or whether the bank will wait for more data before acting.
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