Australia’s inflation rate decreased in the year to March but not enough to prompt the Reserve Bank of Australia (RBA) to cut interest rates anytime soon.
The latest data, released today by the Australian Bureau of Statistics (ABS), showed the annual consumer price index (CPI) dropped from 4.1 percent in December to 3.6 percent in March after market analysts had predicted the rate to slip as far as 3.5 percent.
The RBA signalled its target range for an interest rate cut at 2-3 percent, however, the increasing threat of escalating tensions in the Middle East and their effect on oil prices should ensure delays to any impending cuts over the next quarter.
Quarterly inflation rose 1 percent, from 0.6 percent in the last quarter of 2023, with a rise to 0.8 percent for the three months to March 2024 predicted.
“Having sprinted lower in the back end of 2023, headline inflation is struggling to keep that momentum going,” Harry Murphy Cruise, an economist with Moody’s Analytics, told The Guardian.
Mr. Murphy Cruise said service inflation derived from service-related categories like education, health, and hospitality is hampering further rate drops.
Education costs rose nearly 6 percent over the quarter, and health costs by 2.8 percent, while housing was up 0.7 percent, and food and non-alcoholic beverages up 0.9 percent.
“Service inflation is the main culprit holding back progress. Inflation will keep easing from here but progress will be slow,” Mr. Murphy Cruise said.
ABS head of price statistics Michelle Marquardt concurred.
“While prices continued to rise for most goods and services, annual consumer price index inflation was down from 4.1 percent last quarter and has fallen from the peak of 7.8 percent in December 2022,” she said.
Education fees also increased by 5.9 percent, driven by a 6.5 percent rise in tertiary expenses. Secondary education costs rose 6.1 percent, followed by preschool and primary education at 4.3 percent on the back of a fee increase at the start of the school year in February.
Housing Pressures
Inflation peaked in December 2022 at 7.8 percent, a level considered unsustainable by many economists, which was fueled by the ongoing disruptions in global supply chains, exacerbated by the COVID-19 pandemic, and geopolitical tensions.In response to the rising inflationary pressures, the RBA has signalled a shift in its monetary policy stance. While the RBA has maintained its commitment to keeping interest rates low to support economic recovery, it has also acknowledged the need to closely monitor inflation and stand ready to adjust its policy settings if necessary.
The Australian government has also announced measures to ease cost-of-living pressures, including targeted support for low-income households and initiatives to boost housing affordability.
Australia has been grappling with housing pressures, particularly in its major cities, which have seen a sharp increase in property prices and rents in recent years. Several factors contribute to this trend, including population growth, low housing supply, and investment activity.
The pressure on the nation’s renters also shows no sign of abating with rents increasing 2.1 percent which is the fastest growth in 15 years.
Perth recorded the highest jump in rents at 9.9 percent, with Sydney’s ongoing supply issues highlighted by an 8.9 percent shift followed by Melbourne which rose 6.9 percent.
The only respite for consumers in the quarter came from electricity prices which fell 1.7 percent in the March quarter. However, this drop can be attributed to the federal government’s National Energy Bill Relief Plan which gives those eligible a rebate of up to $500 off their electricity bills for the 2023-24 financial year.
