Australia’s inflation has most likely topped out and starting to moderate, but it’s unclear if the fall will be enough to convince the Reserve Bank to keep rates on hold next week.
Inflation lifted seven percent annually in the March quarter, but consumer prices as measured by the Australian Bureau of Statistics (ABS) are growing more slowly than in the December quarter when a 7.8 percent yearly increase was recorded.
Quarterly inflation growth rose 1.4 percent in the March quarter, which ABS head of price statistics Michelle Marquardt said was the lowest quarterly rise since December 2021.
“While prices continued to rise for most goods and services, many of these increases were smaller than they have been in recent quarters,” she said.
The quarterly lift was driven by sharp rises in medical and hospital services, tertiary education, gas, and other household fuels, and domestic holiday travel and accommodation.
Underlying inflation, which strips out large jumps and falls in prices, moderated from 6.9 percent in the December quarter to 6.6 percent annual growth through to March.
Consensus expectations were for a 6.9 percent rise in headline inflation in the year to March and a 6.7 percent lift in the trimmed mean.
The monthly indicator fell for the third month in a row from its 8.4 percent peak, lifting 6.3 percent in the 12 months to March.
The quarterly inflation numbers will set the scene for another finely balanced cash rate decision next week.
The Reserve Bank started hiking interest rates in May last year to bring down rising inflation, but it decided to hold steady at 3.6 percent last month.
In recent communications, central bank officials have made it clear the board is prepared to hike again if the incoming data undermines its pathway to returning inflation back within its two to three percent target range.
BIS Oxford Economics head of macroeconomic forecasting Sean Langcake said the data was broadly in line with the firm’s expectations and the RBA’s most recent forecasts.
Langcake said headline inflation had likely peaked and goods prices were starting to cool, which would contribute to slower inflation over 2023.
“But we think there is enough momentum in core and services inflation to warrant tighter policy settings and maintain our expectation for another rate hike in May,” he said.
