Australian Inflation Slows Less Than Expected in March Quarter, Dimming Rate Cut Hopes

Australia’s inflation rate for the March quarter came in at 3.6%, slightly higher than expected, signaling a slower decline than economists had predicted. The Australian Bureau of Statistics released data showing that consumer prices were 1% higher in the first three months of 2024 compared to the previous quarter. This figure has dampened hopes of a potential rate cut by the Reserve Bank of Australia (RBA) in 2024.

According to Moody’s Analytics economist Harry Murphy Cruise, the inflation slowdown that had been observed towards the end of 2023 seems to be losing momentum. While the inflation rate is expected to continue easing, progress is forecasted to be gradual.

Noteworthy increases in costs were recorded in education and health sectors during the quarter. Education expenses surged by 5.9%, with tertiary costs leading the way at a 6.5% increase. Health costs also experienced a 2.8% rise over the same period.

Rents, in particular, saw a significant jump, rising by 2.1% in the quarter. This increase contributed to an annual rise of 7.8%, marking the fastest pace seen in 15 years, mainly driven by low vacancy rates across major cities.

Among the cities, Perth recorded the highest rent increase at 9.9%, followed by Sydney at 8.9% and Melbourne at 6.8%. Conversely, Hobart saw a slight decline of 0.4% in rents.

On the other hand, electricity prices saw a decrease, falling by 1.7% in the March quarter. However, a year-on-year comparison showed a 2% increase in electricity prices. The annual rise would have been much higher, at 17%, if not for government rebates.

The Reserve Bank of Australia is expected to review the latest data during their upcoming meeting in May. Prior to the release of this data, market expectations for a rate cut were slim. Additionally, the federal budget, set to be unveiled on 14th May, will also be influenced by these inflation figures.

Aside from headline CPI, the RBA will focus on trimmed mean and weighted median measures, which slightly exceeded expectations for the quarter. Categories such as automotive fuel and food saw some easing in prices, whereas services inflation continued to be a concern.

These inflation figures are crucial as they impact the ongoing debate on potential interest rate cuts by the RBA. With inflation showing a slower decline than anticipated, the likelihood of a rate cut in the near future seems less certain.