Core inflation back in target band, but economists split on size and timing of RBA move
Trimmed mean inflation has fallen within the Reserve Bank of Australia’s (RBA) target band for the first time in over three years, but economists remain divided on whether this will prompt a cash rate cut at the central bank’s May meeting.
Figures released by the Australian Bureau of Statistics (ABS) for the March quarter show trimmed mean inflation — the RBA’s preferred gauge — eased to an annual pace of 2.9%, down from 3.3% in the December quarter. Although slightly above market forecasts, the figure marks the first time since late 2021 that core inflation has landed inside the RBA’s 2-3% range.
Headline inflation held steady at 2.4% on an annual basis, mirroring the previous quarter. The ABS’s monthly CPI indicator for March also showed little movement, with headline inflation at 2.4% and trimmed mean inflation at 2.7%.
Australia’s major banks have all forecast a rate cut on May 20, but differ on the scale. NAB has predicted a 50 basis point reduction, while others see a smaller 25 basis point move as more likely.
While economic conditions are becoming more favourable for a rate cut, ongoing global trade developments and the RBA’s recent statements suggest a cautious approach. The central bank has indicated it won’t act hastily, raising doubts about the prospect of a larger-than-usual cut.
For mortgage holders, even a modest cut could ease repayment pressures. Canstar estimates that a 25-basis-point reduction passed on in full could lower monthly repayments by $91 on a $600,000 owner-occupier loan with 25 years remaining. A 50-basis-point move could reduce repayments by $181.
“The fact that trimmed mean inflation is now sitting in the target band will force the RBA to consider the case for a cash rate cut at its next meeting in May, particularly now services inflation is firmly trending down,” said Sally Tindall (pictured above), data insights director at Canstar. “However, the outcome of this meeting will be a line-ball call.”
RBA governor Michele Bullock has described the current cash rate as “mildly restrictive,” a comment Tindall believes points to potential rate cuts ahead — though not necessarily an aggressive move.
“At this stage, unemployment, the economy and the majority of households are holding up okay,” Tindall said. “There’s still no need for the RBA to hit the panic button and certainly no reason for the board to fire off a double cut.”
Tindall added that while borrowers could see some short-term relief if rates are lowered, future bank responses remain uncertain.
“If the RBA cuts the cash rate in May it would be to give borrowers some additional relief after a long hard slog bearing the brunt of higher rates,” she said. “If there’s a cash rate cut in May, we expect the majority of banks will play ball and pass the cut on in full. However, if we see a number of cuts this year, then all bets are off as to what the banks will do.”
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