Australia Inflation Gauge Eases Slightly in April, Supporting Rate Cut Expectations

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The Melbourne Institute’s Monthly Inflation Gauge rose by 0.6% in April 2025, a slight deceleration from March’s 15-month high of 0.7%. This marks the second consecutive monthly increase, following a 0.2% decline in February.

The Reserve Bank of Australia (RBA) maintained the cash rate at 4.1% in April, after a 25-basis point cut in February. The recent easing in the inflation gauge aligns with broader trends, as the RBA’s preferred trimmed mean inflation measure fell to 2.9% annually in March, down from 3.3%, returning inflation to the central bank’s target range of 2-3% for the first time since late 2021. The Guardian+3Reuters+3news+3

Financial markets are now pricing in a high probability of a 25-basis point rate cut in May, with expectations of multiple cuts totaling up to 117 basis points by year-end. Treasurer Jim Chalmers highlighted the drop in core inflation as a key economic achievement, reinforcing the government’s economic management credentials ahead of the upcoming election. The Australian+5Reuters+5The Guardian+5

Despite the positive inflation data, some economists caution that expectations for aggressive rate cuts may be overly optimistic, given persistent inflation pressures in essential goods and services, such as electricity, fuel, rent, and food.

Overall, the moderation in the Monthly Inflation Gauge suggests that inflationary pressures are easing, potentially providing the RBA with room to adjust monetary policy to support economic growth.