^{Source: Bloomberg News}

According to data released by the Australian Bureau of Statistics (ABS), the Consumer Price Index (CPI) increased 2.4% year-on-year for the March quarter. This was unchanged from the previous quarter but slightly above the Reuters consensus forecast of 2.3%, underscoring that while inflation has broadly cooled, certain sectors remain inflationary hotspots.

Key Contributors: Housing, Education, and Food Costs

The ABS highlighted that housing (+1.3% q/q), education (+5.7%), and food and non-alcoholic beverages (+1.2%) were the primary drivers of upward price pressure this quarter.

• Rents climbed significantly due to a tight housing market, especially in major cities like Sydney and Melbourne.
• School fees and tertiary education costs surged as government subsidies rolled back and operating costs rose.
• Food prices, particularly for fresh produce and packaged items, continued their ascent, largely due to transportation costs and supply chain pressures.

These increases were partially offset by declines in the prices of recreational services (-1.1%), household equipment (-0.8%), and furnishings, reflecting shifting consumer priorities and post-holiday spending cooldowns.

A Gradual Descent From the Peak

Inflation in Australia has decelerated meaningfully from its peak of 7.8% in Q4 2022, a multi-decade high driven by pandemic aftershocks and supply constraints. Since then, headline inflation has eased in seven out of the last nine quarters, helped by aggressive monetary policy tightening and global stabilization.

The RBA’s interest rate, currently at 4.1%, had previously peaked at 4.35%—its highest level since 2011. Analysts believe this persistent inflation cooling trend gives the central bank more flexibility to ease monetary conditions without reigniting inflation.

Underlying Inflation Moves into Target Range

Economists point to underlying inflation measures as a sign of healthier disinflation.

• The trimmed mean inflation (which strips out volatile price changes) came in at 0.7% quarter-on-quarter and 2.9% year-on-year, marking the first time it has fallen within the RBA’s 2-3% target band since 2021.

Sean Langcake, head of macroeconomic forecasting at Oxford Economics Australia, commented:

“This data gives the RBA space to maneuver. The core inflation data is clearly improving, and that’s likely to embolden those within the bank calling for a rate cut as early as May.”

Langcake predicts a 25 basis point cut next month, with two additional reductions in H2 2025 if global economic risks materialize.

Economic Outlook: Mixed Signals Ahead of National Election

In its latest statement, the RBA acknowledged improved inflation dynamics, but cautioned that “significant global uncertainties remain,” especially concerning the Chinese economy and geopolitical tensions.

The central bank expects GDP growth to pick up modestly in 2025, with the labor market holding steady. However, it emphasized that fiscal policy and global demand shifts could significantly alter the trajectory.

Political Stakes: Inflation Front and Center

The CPI data arrives just days ahead of Australia’s federal election on May 3, where all 150 lower house seats and 40 Senate seats are being contested.

According to Newspoll data reported by Reuters, the Labor Party, led by Prime Minister Anthony Albanese, currently holds a four-point lead over the Liberal-National coalition once preferences are redistributed. Cost-of-living concerns have become a central campaign issue, with both major parties promising various forms of inflation relief, from energy subsidies to housing reforms.

All Eyes on the RBA

While Australia's inflation appears to be under control at face value, the persistence of sector-specific price pressures and looming global uncertainties keep the central bank cautious. With underlying metrics offering some comfort, monetary easing in the coming months looks increasingly likely—but the pace and scale will depend on both domestic resilience and global headwinds.

As voters prepare to cast their ballots and the RBA approaches its next policy meeting, the trajectory of inflation and interest rates will shape both economic and political narratives in the months ahead.

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