Consumers paid more for insurance, education and health services in the March quarter, as stubbornly persistent services inflation dimmed hopes that the Reserve Bank can cut rates sooner than expected.
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.
The reading was slightly firmer than economists had expected, with analysts forecasting an increase of 3.5 per cent.
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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, and will add to concerns inflationary pressures will remain stubbornly persistent.
With household borrowers holding out for relief in the form of rate cuts, the latest inflation report should support the market’s view that the RBA will not move to cut interest rates until next 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 was 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.
The RBA board is expected to deliver its next interest rate decision on May 7 where it is widely expected to hold the cash rate steady.