Rate cuts inch closer as inflation eases further
Hope Coumbe, Finance Editor
First published 26 March 2025, 11:30 AM
The latest Consumer Price Index (CPI) monthly indicator shows headline inflation slowed slightly to 2.4% over the 12 months to February, officially now in the lower part of the bank’s 2-3% sweet spot.
The RBA’s preferred measure that it will consider more closely ahead of next Tuesday’s meeting is the trimmed mean, the calculation that rules out the most volatile price changes. This figure is down to 2.7% after a slight rise in January.
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“Annual trimmed mean inflation has remained relatively stable for three months,” ABS head of price statistics Michelle Marquardt said.
Housing was one of the largest contributors to the movement in the data, up 1.8%.
Rate cut hopes
While the monthly updates from the ABS only provide a limited window into how inflation is tracking, today’s figures will be a positive boost to the RBA ahead of its final cash rate decision before the federal election.
REA Group executive manager of economics Angus Moore said the figures are "a good sign that the outlook is tracking as the RBA is expecting".
All eyes will be on the next quarterly inflation update, which is due to be published on 30 April, after trimmed mean inflation came in at 3.2% for the December quarter.
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The 3.2% figure was the lowest level recorded since the end of 2021 and is hovering only marginally above target.
A return of trimmed mean inflation into the 2-3% bracket can almost certainly ensure Aussies will be in line for a much-needed May rate cut as the end of the financial year approaches.
"The fact that inflation appears to be under control certainly keeps the case for rate cuts open," Mr Moore said. "However, the RBA will be continuing to watch the labour market, which remains tight."
Cold water
Governor Michele Bullock has been persistent in her concerns around rate cutting in unstable inflationary periods, raising concerns not only about the labour market in recent months, but about slow private sector growth and government spending.
'How interest rate cuts affect the property market': youtube.com/mortgagechoice
Despite the clear easing of inflation over the past six months, assistant governor Sarah Hunter last week poured cold water on the bank's ability to mitigate against inflation upticks, saying the bank is rarely able to respond immediately to market shifts.
While her speech at a Sydney event was no doubt designed to simply provide a detailed look at the impact of RBA policy and reactions, the admission of the lengthy time between setting policy and seeing its impact is disconcerting to those hoping to see another rate cut next week.
Ahead of the curve
Despite the RBA's characteristic caution however, treasurer Jim Chalmers’ yesterday revealed Treasury expects inflation back within the target band six months earlier than initially expected.
Delivering his federal budget address, Dr Chalmers said Australia was “among the best placed” economies to push back on any future risks to burgeoning inflation.
The budget – which included a housing package predominantly aimed at first home buyers – was the Labor government’s last opportunity to salvage support and entice more voters ahead of the campaigning season.
Looking ahead
The RBA will meet next Tuesday to make a decision on the cash rate, which is currently 4.10%. The Australian Stock Exchange tracker is currently pricing in just an 8% chance of a second cut for 2025.
Commenting on today's inflation figures, Dr Chalmers said: "This is even more proof that inflation continues to moderate in our economy.
"It is a reminder of our substantial and sustained progress in the fight against inflation."
