- 26 Mar 2025
- By API Magazine
The Reserve Bank of Australia has been given some ammunition to cut interest rates again on 1 April but will the inflation dip be enough for them to pull the trigger?
Australia’s inflation rate has fallen according to data released within a week of the Reserve Bank of Australia meeting to make its next interest rates decision.After holding steady for two months at 2.5 per cent, the Consumer Price Index (CPI) indicator came in at 2.4 per cent for the 12 months to February 2025.
While heading in the right direction for borrowers looking for a degree of repayment relief, the 0.1 per cent decline might not be enough to prompt the RBA to go back-to-back with rate cuts.
The RBA in February cut the official cash rate to 4.10 per cent but has since indicated that global uncertainty is weighing on its mind as it contemplates further rate cuts in 2025.
The market has priced in a better-than-even chance of a rate cut on 20 May but the upcoming 1 March RBA Monetary Policy Meeting looks too soon for most observers.
RBA Governor Assistant Governor, Sarah Hunter, has said they are “focused on US policy settings, the impact of these on the global economy and how this flows through to activity and inflation here in Australia.”
That will take time to play out as the Donald Trump administration shifts the tariff goalposts on a near daily basis.
The RBA pays more attention to the trimmed mean measure of inflation that also fell 0.1 per cent, to 2.7 per cent.
Michelle Marquardt, ABS Price Statistics Head, said this was down slightly from the 2.8 per cent inflation in January and has remained relatively stable for three months.
“‘The (trimmed mean) CPI excluding volatile items and holiday travel measure rose 2.7 per cent in the 12 months to February, compared to a 2.9 per cent rise in the 12 months to January.”
The largest contributors to the headline CPI rate were food and non-alcoholic beverages (+3.1 per cent), alcohol and tobacco (+6.7 per cent), and housing (+1.8 per cent).
Is a rate cut around the corner?
Shane Oliver, Chief Economist, AMP, said the RBA was likely to wait for the quarterly figure before considering the next interest rate cut.
“It’s doubtful this will be enough to see the RBA ease again at its 1 April meeting, preferring to wait and see the more reliable March quarter CPI data ahead of its May meeting, where we do expect it to ease again,” he said.
The RBA is also well aware that a significant element in inflation’s deceleration is the federal government’s energy rebate.
Sally Tindall, Data Insights Director, Canstar, the government has already confirmed a $150 extension of the electricity rebate.
“While this relief will be distributed to every household across the country, it’s not expected to result in a rise in spending at the shops.
“Certainly, last year’s $300 rebate, combined with the stage three tax cuts, saw many people stash this extra cash straight into the bank.
“In fact, by applying the rebate to people’s power bills, the government has said it expects the extension of the rebate will reduce headline inflation by 0.5 percentage points in the short term.
“The problem is, the RBA knows this reduction in prices is very much temporary, with the government only committing to extend it for another six months.
“The RBA might be peeling back the layers of the monthly inflation data due out on Wednesday but it will continue to take the headline inflation figures with a grain of salt when it meets next week.”
Despite the NAB predicting a hefty drop in the cash rate, the bank’s economic spokesperson Luci Ellis said they were confident rates will be kept on hold in April.
“While we still expect a rate cut in May, back-to-back cuts in February and April were never on the table,” Ms Ellis said.
Renters continue to struggle, even if there are signs the worst is over.
Rents increased by 5.5 per cent in the 12 months to February, down from a 5.8 per cent rise in January, and the lowest annual increase since March 2023, reflecting increased vacancy rates across most capital cities.
The lower inflation figure will, however, give the federal government some succour. The Federal Budget released Tuesday night had cost of living at its heart.
