Australia’s Q1 inflation comes in above forecasts, but core slows to 3-year low

[SYDNEY] Australian consumer prices rose slightly more than expected in the first quarter, but annual core inflation still slowed to a three-year low and added to the case for another cut in interest rates next month.

The Australian dollar edged up 0.3 per cent on the beat in the headline figure, while three-year bond futures gave up earlier gains to be flat at 96.69.

Still, investors are almost fully expecting a quarter-point rate cut from the Reserve Bank of Australia on May 20 given the darkening outlook for global growth caused largely by US tariffs.

Data from the Australian Bureau of Statistics on Wednesday showed the consumer price index (CPI) rose 0.9 per cent in the March quarter, just above forecasts of a 0.8 per cent increase. Annual CPI inflation held steady at 2.4 per cent.

The key trimmed mean measure of core inflation increased by 0.7 per cent in the quarter, again above forecasts of a 0.6 per cent gain. The annual pace slowed to 2.9 per cent, from 3.3 per cent, taking it back into the Reserve Bank of Australia’s 2 per cent to 3 per cent target band for the first time since late 2021.

The benign readings would be a positive for Prime Minister Anthony Albanese whose Labor Party is running on the credentials of bringing down sky-high inflation ahead of a tightly held federal election on Saturday.

The RBA skipped a chance to move in April but opened the door to a rate cut next month by noting the May meeting would be an opportunity to revisit monetary policy settings.

Wednesday’s data showed inflation in the services sector slowed to 3.7 per cent in the first quarter, the lowest since the June quarter 2022, while price gains for goods picked up a little to 1.3 per cent from a nine-year low.

For the quarter, the big driver was a 16.3 per cent jump in electricity prices as some government rebates on power bills expired, prompting a rebound in the headline figure. REUTERS