Consumer price temperature check key to rates outlook

Hotly awaited quarterly consumer price data will land amid fears inflation progress is stalling.

Australia’s hotly anticipated quarterly consumer price index will land amid fears inflation progress is stalling in some advanced economies and threatening to delay interest rate cuts.

Consecutive months of hotter-than-expected United States inflation data have pushed back the expected timing of rate cuts in the world’s biggest economy to later this year.

Australian interest-rate markets have followed suit, with a cut not fully priced in until 2025.

The first quarterly inflation update from the Australian Bureau of Statistics for 2024, due on Wednesday, will be awaited keenly for signs price pressures are abating in line with the Reserve Bank’s forecasts and easing can start sooner rather than later.

Consensus forecasts have the quarterly rate gathering pace from the 0.6 per cent recorded in December to 0.8 per cent in the three months to March, but the annual figure is tipped to sink from 4.1 per cent to 3.5 per cent due to base effects.

If annual inflation falls in line with consensus, it would be the slowest rate in two years.

The RBA’s latest forecasts have inflation reaching 3.3 per cent by mid-2024 and softening gradually over the following 18 months to be back within target at 2.8 per cent by late 2025.

St George chief economist Besa Deda said it was unclear if Australia’s domestic situation warranted a later start to rate cuts as market pricing would suggest.

Australia’s economy was on track for weaker growth than in the United States, where Inflation Reduction Act-related investment and lower mortgage-holder sensitivity to high interest rates was helping keep demand firm and pressure on prices.

Yet Ms Deda said the Australian labour market remained tight, based on the latest jobs data, suggesting the RBA may not need to be in any rush to cut in the near term.

While the jobless rate edged higher in March to 3.8 per cent from 3.7 per cent in February, it remains low compared to historical averages.

“Amidst the economic factors, central banks around the world must also contend with the uncertainty evolving from the Middle East conflict, which has escalated over the past week,” Ms Deda added.

The RBA board has kept the cash rate on hold at 4.35 per cent for several months and is due to meet next on May 7.