By Shane Wright and Millie Muroi
The best inflation figures in a decade are poised to deliver home buyers a post-election cut in official interest rates with more to come by Christmas, giving Anthony Albanese a late boost to his re-election chances.
Economists and financial markets believe a quarter percentage point cut, worth $100 a month to repayments on a $600,000 mortgage, is all but a done deal after the Australian Bureau of Statistics reported prices rose by 0.9 per cent in the March quarter, keeping annual inflation at 2.4 per cent.
The trimmed mean inflation rate of 2.9 per cent is its lowest level since the December quarter of 2021, and fell by 0.4 percentage points over the past three months.
It’s the first time since mid-2014 that both headline and underlying inflation have been within the Reserve Bank’s 2-3 per cent target band at the same time.
Treasurer Jim Chalmers said the numbers, particularly the fall in underlying inflation, were a sign that showed the economy had made good progress during the term of the Albanese government.
He did not attempt to dissuade financial markets from winding back their expectations of a rate cut when the Reserve Bank meets on May 19-20.
Finance Minister Katy Gallagher and Treasurer Jim Chalmers watch the PM speak on Wednesday.Credit: Alex Ellinghausen
“I’m not making a prediction about that, but the market has a very firm view that there are more interest rate cuts on the way, and I don’t see anything in these numbers that would substantially alter their expectations,” he said.
Shadow treasurer Angus Taylor claimed the figures showed that inflation was accelerating rather than moderating because of the government’s spending.
“Make no mistake, prices are still rising, and households are still being squeezed by Labor’s cost-of-living crisis,” he said.
The increase in prices during the March quarter was driven by the end of a $1000 electricity subsidy in Queensland.
Nationally, power prices jumped by 16.3 per cent in the quarter, but without the end of Queensland’s $1000 subsidy, electricity prices would have lifted by just 0.4 per cent.
Food prices were up 1.2 per cent in the quarter, with poor growing conditions and seasonal changes pushing up the cost of avocados, mangoes, asparagus, tomatoes and lettuce.
Egg prices have climbed by 12.4 per cent over the past year due to the fallout of avian flu, while rebuilding of the national flock has driven lamb prices up by 19.7 per cent.
The annual inflation rate for insurance fell to 7.6 per cent after hitting 16.4 per cent a year ago. Rents inflation also eased, edging down to 5.5 per cent after being at 7.8 per cent in the March quarter of last year.
Housing construction costs, which three years ago were climbing at 20 per cent, have come off quickly, with prices up by 1.4 per cent over the past 12 months.
Senior ANZ economist Adelaide Timbrell noted that the prices of discretionary goods fell for the first time since March 2022, with drops in holiday travel, clothing and footwear and household furnishings.
“We view an RBA rate cut of 25 basis points in May as a near certainty, given the downside risks to global and domestic growth stemming from global trade policy uncertainty and the inflation outcomes over the past two quarters,” she said.
AMP’s deputy chief economist Diana Mousina said both headline and underlying inflation had fallen without causing mass job losses.
She said given the global and domestic headwinds, a rate cut next month, followed by another in August, appeared the Reserve Bank’s most likely move.
“Our view is that the lower inflation backdrop, still poor GDP growth, sluggish consumers, downside risks to global trade and growth from Trump tariffs and a potential deflationary impulse on Australia means the RBA should cut the cash rate again by a quarter percentage point to 3.85 per cent at its May meeting,” she said.
Deloitte Access Economics head, Pradeep Philip, said the figures showed a rate cut in May was still on the RBA’s agenda.
He said with headline and underlying inflation back within the Reserve Bank’s target band, and with growing economic uncertainty overseas, the bank could safely cut rates.
“A May rate cut should not be viewed as the RBA declaring ‘mission accomplished’ in the fight against inflation,” he said.
“Instead, it should be viewed as insurance against any collateral damage a trade war and geopolitical turbulence may cause the Australian economy.”
Cut through the noise of federal politics with news, views and expert analysis. Subscribers can sign up to our weekly Inside Politics newsletter.