Australia’s Inflation Holds At 2.4% As RBA Eyes Room For Rate Cuts Ahead Of May Election
GerikSummary:
Australia’s inflation held steady at a four-year low of 2.4% in Q1 2025, slightly above expectations, offering the Reserve Bank of Australia flexibility to support the economy through potential rate cuts...
Inflation Stabilizes At Four-Year Low, Strengthening Monetary Policy Flexibility
Australia’s consumer price index (CPI) rose 2.4% year-over-year in the first quarter of 2025, unchanged from the previous quarter and remaining at a four-year low. This print came in slightly above Reuters’ consensus forecast of 2.3%, but still firmly within the Reserve Bank of Australia’s (RBA) 2–3% target range.
The inflation data, released by the Australian Bureau of Statistics, signals continued disinflationary momentum after a peak of 7.8% in Q4 2022. The softening trend has now persisted through seven of the last nine quarters, reflecting easing cost pressures across major sectors.
Sectoral Breakdown Highlights Mixed Price Movements
The most notable quarterly price increases came from the housing, education, and food and non-alcoholic beverage categories—sectors often influenced by cyclical factors and supply chain adjustments. Conversely, prices declined in recreation and culture, as well as furnishings and household services, partially offsetting overall upward pressure.
This sectoral divergence suggests that inflationary pressures are becoming more localized and less systemic, a positive development for the central bank’s policy outlook. It also supports the notion that headline inflation is being anchored more by fundamentals than by commodity-driven shocks or global supply disruptions.
Core Inflation Offers Clearer Signal For RBA Policy
The RBA’s preferred measure of underlying inflation—the trimmed mean CPI—rose 0.7% quarter-on-quarter and 2.9% year-on-year. This places core inflation comfortably within the target range, giving the central bank greater policy flexibility.
Sean Langcake of Oxford Economics emphasized that the trimmed mean performance enhances the case for monetary easing, noting that the RBA now “has greater scope to help support the economy through this coming shock.” His forecast includes a 25-basis point rate cut in May, followed by two additional cuts in the second half of 2025.
The RBA has already trimmed its benchmark rate from 4.35% to 4.1%, reversing a tightening cycle that began amid the 2022 inflation peak. While policy remains restrictive relative to pre-pandemic norms, the declining inflation trajectory opens space for further stimulus.
Election Looms As Economic Policy Becomes Central Focus
The inflation release arrives just days before Australia’s federal election on May 3. All 150 House of Representatives seats and 40 Senate seats are in play, with economic management a key campaign theme.
According to a Newspoll survey cited by Reuters, Prime Minister Anthony Albanese’s Labor Party holds a four-point lead over the opposition Liberal-National Coalition when adjusted for preference flows. With cost-of-living concerns still top-of-mind for voters, steady inflation figures may support the incumbent’s fiscal and monetary policy positions.
Outlook: Growth, Labor Stability, But Global Headwinds Persist
The RBA maintains a cautiously optimistic outlook for 2025, expecting stronger domestic growth and a resilient labor market. However, global uncertainty—particularly from trade disruptions, geopolitical risks, and capital market volatility—continues to cloud the external environment.
The combination of subdued inflation and solid labor conditions provides the RBA with a rare policy window: to ease rates in support of growth without stoking price instability. Whether the central bank acts swiftly or proceeds with gradual easing will depend on upcoming data releases, including labor market trends, household consumption, and global financial conditions.
Source: CNBC
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