Rate cut path reassured as inflation ticks further down

The latest Consumer Price Index monthly indicator shows headline inflation rose 2.4% in the 12 months to April, meaning there has been no change since February’s data.

Trimmed mean inflation, which is the Reserve Bank of Australia’s (RBA) preferred measure to look at, is up slightly at 2.8% after coming in at 2.6% in March.

The figure is still within the RBA’s target range of 2-3% and adds further reassurance to the bank's decision to cut 0.25% off the cash rate last week.

Despite this, REA Group senior economist Eleanor Creagh warns "price pressures remain beneath the surface" for Aussie homeowners.

"Although the rate cut earlier this month is providing some relief for mortgage holders and has buoyed buyer sentiment, affordability remains a challenge," she said.

"Sustained affordability improvements will depend on further reductions in the cash rate over time."

Housing inflation uptick

Annual housing inflation was 2.2% in April, an increase from the 1.8% recorded in the bureau’s March data.

REA Group senior economist Eleanor Creagh says home prices should continue to lift throughout the second half of the year. Picture: supplied

"Population growth and a persistent undersupply of new housing continue to underpin prices," Ms Creagh said.

This is still a story of stability however, with ABS head of price statistics Michelle Marquardt confirming it is still the lowest annual increase since April 2021.

Despite affordability constraints, Ms Creagh said she expects prices will keep lifting over the coming months but rises will be more modest compared with recent years.

Rental market forecasts are continue to improve however – a welcome sign for the third of Aussies who have struggled for several years with a squeezed post-Covid market.

“Rents rose 5% in the 12 months to April, following a 5.2% rise in the 12 months to March,” Ms Marquardt said. 

'The RBA and the cash rate': youtube.com/mortgagechoice

“This is the lowest annual growth in rental prices since February 2023, consistent with rising vacancy rates across most capital cities.”

Ms Creagh added: "Rent growth remains well below the peak levels seen over 2022 and 2023".

Rate cut cycle in action

This year was dubbed the ‘year of cuts’ after the Reserve Bank’s historic decision to finally cut the 13-year high cash rate back in February.

All four big banks have predicted multiple cuts this year, with the latest forecasts since last week’s second rate reduction confirming we are well and truly in a cut cycle.

National Australia Bank remains the most bullish, anticipating three further cuts this year. Commonwealth Bank and Westpac are forecasting two more cuts for 2025, while ANZ has only locked in a prediction for one more.

Reserve Bank cautiously optimistic

RBA governor Michele Bullock was positive in her most recent commentary on interest rates in Australia, saying both inflation and the domestic forecast are in good shape despite US-China trade war concerns.

Unsurprisingly, the bank remained tight-lipped last week about its expectations for potential adverse effects for Australia caused by US president Donald Trump's erratic tariffs.

The nation’s tight labour market was identified by Ms Bullock as the greatest concern within the domestic economy at the moment, with worries around Australia’s 60-year low productivity largely brushed aside.

Looking ahead to the second half of 2025, Ms Creagh said she expects buyers will continue to "balance cautious optimism with cost-of-living realities" as the economy adjusts to the 3.85% cash rate. 

The RBA board will not meet for another decision on rates until the new financial year.