Inflation blow to hopes of rate relief

Inflation rebounded in the March quarter as consumers paid more for insurance, education and health services, dimming hopes the Reserve Bank can cut interest rates this year.

The consumer price index rose 1 per cent in the March quarter, the Australian Bureau of Statistics reported on Wednesday, up from 0.6 per cent in the December quarter.

The reading was firmer than economists had expected.

The quarterly result brought annual headline inflation to 3.6 per cent, with the reading benefiting from the removal of firm inflation figures from the 2023 March quarter, when inflation rose 1.4 per cent.

Wednesday’s report also showed trimmed mean inflation – which excludes more volatile items such as food and energy – climbed to 4 per cent from the year before.

The RBA considers that measure a better predictor of inflationary pressures, and will add to concerns that pressures 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 reduce interest rates until some time next year.

The RBA aggressively increased interest rates 13 times between May 2022 and last November as it attempted to tame inflationary pressures by slowing the economy.

But amid signs price growth was easing, and returning toward the central bank’s 2-3 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.

While inflation has fallen dramatically since its peak of 7.8 per cent in the December quarter , the employment market continues to defy economists’ expectations.

Labour force figures released this month showed the economy shed just 6600 jobs in March, with the unemployment rate at a near-record low of 3.8 per cent.

The RBA board will deliver its next interest rate decision on May 7.