2LT National News

SYDNEY, Australia: A key measure of inflation in Australia has cooled to its lowest level in three years, lending weight to expectations that the Reserve Bank of Australia (RBA) may lower interest rates at its upcoming May meeting.

Data released this week showed core inflation fell back into the RBA’s target range for the first time since 2021, driven by a slowdown in services prices. The trimmed mean—closely watched by the central bank—rose 0.7 percent in the March quarter, slightly above forecasts, but the annual rate dropped to 2.9 percent from 3.3 percent, hitting a level last seen in 2021.

Headline inflation, measured by the consumer price index (CPI), rose 0.9 percent for the quarter, pushed up by a 16.3 percent spike in electricity prices following the expiration of some government rebates. Annual CPI remained unchanged at 2.4 percent.

The figures have strengthened market expectations for a 25-basis-point rate cut on May 20, particularly as concerns about slowing global growth mount amid escalating U.S. trade tariffs. Still, the stronger-than-expected headline number led some investors to trim forecasts for deeper easing over the rest of the year.

Inflation in the services sector eased to 3.7 percent in the quarter, the slowest pace since mid-2022. Prime Minister Anthony Albanese’s Labor government welcomed the trend ahead of a closely contested federal election, with Treasurer Jim Chalmers saying the data did not shift expectations for further monetary easing.

Tony Sycamore, an analyst at IG, said the softer inflation outlook and global risks “mean the RBA is likely to focus on downside risks to growth and cut interest rates by 25 basis points in May.”

Pradeep Philip of Deloitte Access Economics echoed that view. “A May rate cut should not be viewed as the RBA declaring ‘mission accomplished’ in the fight against inflation. Instead, it should be viewed as insurance against any collateral damage a trade war and geopolitical turbulence may cause the Australian economy.”

The RBA held rates steady in April but signaled that the May meeting would be a key moment to reassess policy. The central bank has expressed concern about the labor market, though recent wage data suggest easing pressure.

This week’s report also showed a 5.7 percent jump in education costs, while insurance price growth slowed and construction costs rose at their slowest pace since mid-2021.

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