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Due for release next week (30 April), the March quarter Consumer Price Index (CPI) figures are forecast to drop further into the Reserve Bank of Australia’s (RBA) 2–3 per cent target band.
Economists from the major banks – the Commonwealth Bank of Australia (CBA), Westpac, and NAB – have all pencilled in a rise of 0.7 per cent to 0.8 per cent in headline CPI for 1Q25, which would bring the annual inflation rate to 2.2/2.3 per cent, below the RBA’s “midpoint” range of 2.5 per cent.
More importantly, however, the “policy-relevant” trimmed mean figure is expected to drop within the target range for the first time since the December quarter 2021, with a quarterly rise of 0.6 per cent to bring the annual rate to 2.8 per cent, down from the 3.2 per cent reading during the December quarter 2024.
According to NAB’s economics team, the specifics of the incoming data will “matter less to the RBA given rising global risks”.
“In our view, ongoing benign quarterly prints should see annual trimmed mean inflation reach the midpoint of the RBA’s target band in Q2,” it said.
“Our assessment is that the starting point for core inflation ahead of tariff policy developments was consistent with inflation tracking sustainably near the RBA’s target.
“We think higher tariff barriers on bilateral US trade is on net a disinflationary force for Australia as export capacity, especially through final consumer goods from China, is redirected away from the US.”
CBA economist Stephen Wu said the trimmed mean CPI forecast is viewed as “slightly skewed to the upside”, meaning that there is potential for trimmed mean CPI to rise by 0.7 per cent.
“The RBA’s latest published forecast implies a 0.7 per cent /qtr expectation on the trimmed mean. Indeed, the RBA noted in the April Board Minutes that ‘trimmed mean inflation would be likely to fall below 3 per cent in the March quarter’,” Wu said.
“Following the March labour force survey, we think a 25-bp rate cut in May is still more likely than not if the trimmed mean CPI prints in line with the RBA’s forecast. If the trimmed mean CPI is in line with our forecast, then we consider a rate cut in May is a done deal.”
[RELATED: Unemployment up slightly, May rate cut ‘all but certain’]
