Inflation figures point to May rate cut

The Consumer Price Index (CPI) rose 0.9% in the March 2025 quarter and 2.4% annually, according to the Australian Bureau of Statistics (ABS).

"The March quarter increase of 0.9% follows two quarters in a row of 0.2% rises," ABS acting head of prices statistics Leigh Merrington said.

"Annual inflation to the March 2025 quarter of 2.4% was unchanged from the December 2024 quarter."

Trimmed mean, or underlying, annual inflation was 2.9% in the March quarter, down from 3.3% in the December quarter. This is the lowest annual trimmed mean inflation rate since the December 2021 quarter.

Saxo chief investment strategist Charu Chanana said while a May interest rate cut is still widely expected from the Reserve Bank of Australia (RBA), the inflation problem remains.

"Australia's inflation surprise reinforces that we're not past the inflation problem yet - especially with tariff risks still looming globally," Chanana said.

"The RBA will have to remain cautious, and while a May rate cut is fully priced in, expectations for five cuts this year may need to be revised down. This stickier inflation backdrop supports the AUD in the near term, unless clearer global recession signals emerge and shift the focus back to growth risks."

State Street Global Advisors APAC economist Krishna Bhimavarapu agreed a May rate cut is expected, but said that's not what economists will be focused on.

"Today's CPI data makes a May rate cut a near certainty, but that is an old hat for Australia. What needs to be seen is whether the RBA changes its hawkish stance or not," Bhimavarapu said.

"While we are not confident that it may happen, we still expect the cash rate to reach 3.10% by December as global growth comes under pressure from a prolonged trade conflict between the US and Australia's biggest trade partner, China."

VanEck head of investments and capital markets Russel Chesler said he was "encouraged" by the slow but steady progress that has been made to bring inflation down.

"The positive results from today's CPI print will most likely strengthen the market consensus that the RBA's next rate cut will be in mid-May. While we agree this is the most likely outcome, we don't believe it is strictly necessary based on current macro conditions, including the tight labour market, resilient retail sales and rebound in house prices," Chesler said.

"We would like to see a longer run of the trimmed mean being within the RBA's target 2-3% range before we start sharpening the knife for further rate cuts."

Chesler added that global events continue to be an ongoing risk to the Australian economy.

"Obviously, the elephant in the room is the Trump tariffs regime. The longer-term impact of tariff policy on growth and inflation is a global concern, and the latest activity prints in other markets suggest that some downside growth risks might already be materialising in some of our key trading partners, including the US, where the US Economic Policy Uncertainty index remains close to historical highs," Chesler said.