By Rachel Clun
Home buyers are unlikely to see an interest rate cut until closer to Christmas, and the Reserve Bank may even consider further rate rises after a lift in inflation caused by decades-high increases in education, rental and insurance costs.
Annual inflation has continued to fall, dipping to 3.6 per cent in the year to March, down from 4.1 per cent in the 12 months to December, according to the Australian Bureau of Statistics.
Any interest rate cuts from the Reserve Bank are more likely nearer to Christmas if at all following the latest inflation data.Credit: Louie Douvis
But in the first three months of the year, inflation lifted by 1 per cent after a 0.6 per cent increase in the December quarter.
Economists said the result – which was well above market expectations of a 0.7 per cent increase – and the widespread nature of price increases showed that inflation would fall more slowly towards the Reserve Bank’s 2-3 per cent target.
The experts said it also meant the central bank board, which meets on May 6 and May 7, could debate whether another hike was necessary, and any interest rate cuts were now likely to start in November or later.
Callam Pickering, Asia Pacific economist at Indeed, said the inflation figures were a “sobering reminder” that the fight against high inflation had not yet been won.
“Higher-than-expected inflation is a big blow to those hoping for a rate cut this year,” he said.
The Reserve Bank forecast that inflation would reach 3.3 per cent in June and fall within its target range by the second half of 2025, but AMP deputy chief economist Diana Mousina said those forecasts might need to be revised up, and the board might have to change its messaging as a result.
“This may see the RBA move back to a tightening bias (from a neutral bias) as the board may debate whether another rate hike is needed,” she said.
“Today’s inflation data removes the chance of any near-term rate cut.”
Treasurer Jim Chalmers said inflation was still too high, but it was encouraging to see it ease from its peak in December 2022.
“It’s still too high, people are still under the pump, but we’re making progress,” he said.
“In the May budget, the Albanese government will seek to balance the ongoing fight against inflation with the need to gear our economy for growth.”
But shadow treasurer Angus Taylor said that after two years of Labor management, families and businesses were still struggling with the impact of high inflation.
“With three weeks to go until the federal budget, we’re yet to see any signs from Labor that it’s taking inflation seriously,” he said.
Higher university and high school costs, increased health costs and rental price rises helped drive inflation in the first three months of the year, and on an annual basis, rents, insurance and education had the strongest price increases in more than a decade.
Rental prices rose by 7.8 per cent in the year to March, the largest increase since March 2009. But the ABS said that increase would have been 9.5 per cent without the 15 per cent jump in the Commonwealth Rent Assistance payment that came into effect last September.
Sean Langcake, head of macroeconomic forecasting at Oxford Economics Australia, said rents continued to rise thanks to ultra-low vacancy rates in major cities, and they would remain a strong source of underling inflation pressure through the year.
“The strength in underlying inflation highlights that further disinflation from here will be frustratingly slow,” he said.
Education prices rose by 5.9 per cent in the quarter, the biggest rise since 2012, driven by higher primary and secondary school fees as well as tertiary education fees.
Insurance prices also rose by the strongest rate in years, with higher reinsurance costs, natural disaster costs and claims driving higher premiums and lifting insurance inflation by 16.4 per cent through the year, the highest rate since 2001.
Westpac chief economist Luci Ellis said the lift in pharmaceutical prices and insurance costs did not suggest inflation was being driven by strong consumer demand, and added the central bank was likely to remain cautious about services inflation and local demand for some months to come.
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