Private Credit Weekly Insights, 2 May 2025

The ABS released the Consumer Price Index (CPI) data for the March 2025 quarter, indicating a continued moderation in inflation. Annual headline CPI held steady at 2.4%, aligning with the RBA’s target range of 2–3%. ​The RBA's preferred measure of underlying inflation, the trimmed mean, decreased to 2.9% annually, down from 3.3% in the December 2024 quarter. This marks the first time since late 2021 that core inflation has returned to the RBA's target range.

Key drivers of the March quarter CPI figures are below:

• Housing increased 1.7%: Led by a 16.3% increase in electricity prices as most households in Brisbane had rolled off the state government rebates.
• Education rose by 5.2%: Higher operating costs flowed through to higher school fees following the start of the school year.
• Food and non-alcoholic beverages increased 1.2%: Driven by shortages in a range of fruit and vegetables.

Conversely, services inflation eased to 3.7%, the lowest since June 2022, reflecting declining costs in rents and insurance. The moderation in core inflation has bolstered expectations for a potential interest rate cut by the RBA at its May meeting. Markets are pricing in a 25-basis point reduction in May and a further four rate cuts for the remainder of 2025.

In the final week of the Federal election campaign, Treasurer Jim Chalmers highlighted the drop in core inflation as evidence of effective economic management. He cited low inflation, rising real wages, and low unemployment as indicators of progress under the Labor government. Though many economists are warning Australia’s inflation issue is far from solved, particularly due to the lack of productivity improvements that have plagued the domestic economy.

While the March quarter CPI results suggest a favourable inflation outlook, looming risks from a potential global trade war and market volatility are likely to keep the RBA cautious in its decision-making. Whilst the RBA have communicated their cautious stance, markets are pricing in a cut for the next RBA meeting.