Today’s highly anticipated Consumer Price Index release from the Australian Bureau of Statistics showed underlying inflation finally tipping back into the Reserve Bank’s target band. However, headline inflation in the March quarter came in a little higher than expected. 

Headline inflation increased by 0.9% over the March 2025 quarter, with annual headline inflation remaining at 2.4%. This is a far cry from the high of 7.8% in December 2022 and marks the third consecutive quarter of annual headline inflation falling within the Reserve Bank’s target band.

While the quarterly print was a little higher than market expectations, the March quarter is also susceptible to a higher read, with changes in indexation across some key categories. In particular, Education (+5.2%) was a key driver over the quarter. The category succumbed to higher operating costs being passed on as higher school fees and the annual indexation of university course fees.

Additionally, Housing (+1.7%) was pushed up by electricity prices (+16.3%) as some government rebates expired. Notably, Queensland households used up the $1,000 Queensland State Government electricity rebate. Slightly offsetting this was a moderation in annual rental price growth, (+5.5% annual, down from +6.4% in December) reflecting increased rental vacancies across most capital cities. 

Food and non-alcoholic beverages (+1.2%) was another driver of the quarterly result, reflecting reduced supply of seasonal fruit and vegetables. 

Overall, annual goods inflation increased to 1.3% - up from 0.8% in December 2024. Despite the increase, goods inflation is still substantially below its recent high of 9.6% in September 2022. While proving sticky, annual services inflation has moderated to 3.7% - the lowest print since June 2022. This largely reflects price growth easing across a range of services, including rents and insurance.

The trimmed mean, the Reserve Bank’s preferred measure of underlying inflation, increased by 0.7% over the quarter, and moderated to 2.9% over the year. This marks the first time annual underlying inflation has been within the Reserve Bank’s target band since December 2021.

The impact of global trade disruption may become more of a theme as the year plays out. The impact on prices in Australia may depend on how exactly global trade is re-routed. Overall, challenging economic conditions globally may keep inflation under control by sending more keenly priced products Australia’s way. Headline inflation is subsequently expected to stay comfortably within the Reserve Bank’s 2-3% target band throughout 2025.

Prior to today’s data release, a 25 basis point cut at the Reserve Bank’s upcoming May meeting was looked certain, with some suggesting a larger cut of 50 basis points may be on the cards. With headline inflation coming in a little higher than expected the chance of a 50 basis point cut appear to be retreating. A small group may even entertain the idea of an unchanged cash rate. Despite this, we anticipate the Reserve Bank will decrease the cash rate by 25 basis points at the upcoming May meeting, with an additional 50 basis points to be cut through the remainder of 2025.

Getting a taste of mortgage rate reprieve in February, households would welcome an additional cut in May. This, coupled with lower inflation (and subsequently modest real wages growth), is expected to result in consumer spending picking up pace further through 2025. 

This newsletter was distributed on 30^th April 2025. For any questions/comments on this week's newsletter, please contact our authors:

This blog was co-authored by Shannon Cutter, Manager at Deloitte Access Economics

Click on the links below to read our previous Weekly Economic Briefings:

• DAE Business Outlook: A new order of the ages (24 April)

• Global dynamics; State implications (15 April)
• Tariff turmoil (07 April)
• Reserve Bank holds rates amid global uncertainty (02 April)