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Australia's Monthly Inflation Cools, Boosting Rate-Cut Case

Mar 26, 2025 - financialpost.com
In February, Australian inflation unexpectedly cooled, with the Consumer Price Index (CPI) indicator dropping to 2.4%, below the economists' estimate of 2.5%. This marks the seventh consecutive month that the headline figure has remained within the Reserve Bank of Australia's (RBA) target band of 2-3%. The trimmed mean measure, which excludes volatile items like food and energy, also decelerated to 2.7% from 2.8% in January. The slowdown was attributed to a decrease in housing inflation, including rents and power prices, and a decline in fuel costs. The Australian dollar remained stable, while yields on three-year government bonds decreased, and the benchmark stock index rose.

The data supports the case for the RBA to consider further interest rate cuts, having already reduced rates to 4.1% last month. Finance Minister Katy Gallagher expressed confidence that inflation would return to target earlier than expected, despite recent tax cuts announced in a pre-election budget. The RBA is expected to keep rates on hold at its upcoming meeting, with money markets predicting a potential rate cut in May. The report also highlighted a 5.5% rise in rents over the past year, the lowest since March 2023, and a 5.5% drop in automotive fuel prices over the same period.

Key takeaways:

  • Australian inflation cooled in February, strengthening the case for the Reserve Bank to consider further interest rate cuts.
  • The Consumer Price Index indicator dropped to 2.4%, below the expected 2.5%, staying within the RBA's target range for seven months.
  • The trimmed mean measure of inflation, which excludes volatile items, decreased to 2.7% from 2.8% in January.
  • The slowdown in inflation was driven by a reduction in housing and fuel costs, with the RBA likely to keep rates on hold at its next meeting.
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