Inflation edged lower in March, giving the Reserve Bank more confidence that it can soon join other central banks in cutting interest rates or considering to do so.
The consumer price index rose 3.6 per cent in the March quarter from a year earlier, the Australian Bureau of Statistics reported on Wednesday, down from 4.1 per cent in the December quarter.
Economists were forecasting an increase of 3.5 per cent.
Wednesday’s report also showed trimmed mean inflation – which excludes more volatile items including food and energy – climbed 4 per cent. The RBA sees this measure as a better predictor of inflationary pressures in the economy.
With household borrowers holding out for relief in the form of rate cuts, the latest inflation report should support the view that the RBA can move to cut interest rates later this year.
Prior to the fresh inflation reading, markets had priced out the chance that the central bank would move to lower interest rates before year’s end, with a 0.25 per cent cut not expected until early 2025.
The RBA aggressively hiked interest rates 13 times since May 2022 as it attempted to tame inflationary pressures by slowing the economy.
But amid signs that price growth is easing, and returning toward the central bank’s 2 to 3 per cent target band, the RBA has kept interest rates on hold since November last year at a 12-year high of 4.35 per cent.
“We still have to get inflation down and the risks to achieving that remain finely balanced,” RBA governor Michele Bullock said at a press conference in March.
“The war isn’t yet won. So, we continue to be vigilant and we can’t rule anything in or out.”
While inflation has fallen dramatically since its peak of 7.8 per cent in the December quarter under the weight of increased borrowing costs, the jobs market continues to defy economists’ expectations.
Separate labour force figures released earlier this month showed the economy shed just 6600 jobs in March, with the unemployment rate sitting at a near-record low of 3.8 per cent.