The March 2025 quarter CPI data released today were a touch above market expectations. The headline CPI rose by 0.9% over the quarter, well up on the slight 0.2% increase reported in the prior quarter. This delivered an annual CPI increase in the March 2025 quarter of 2.4%, which matched that reported in the prior quarter.
But the CPI numbers all financial market players make a bee line for each quarter are the annual prints for the trimmed mean and weighted median ;underlying’ inflation measures, which hold much more significance from a monetary policy expectations angle.
The trimmed mean CPI rose by 2.9% on a March 2025 quarter-on-March 2024 quarter basis, while the weighted median measure went 3.0% higher. While these numbers too were a bit above economists’ projections, they are now finally back into the RBA’s underlying consumer price inflation target band of 2-3% (just!). The last time these CPI measures were in this target band was back in late calendar year 2021.
Source: ABS and TSN
The biggest quarterly gainers amongst the headline CPI’s various components over the March 2025 quarter were Housing (+1.7%), Education (+5.2%), and Food and non-alcoholic beverages (+1.2%).
Delving deeper into the above-mentioned Housing-related increase, the ABS noted that this gain was driven by Electricity (+16.3%). This came as electricity price reductions seen in earlier quarters by virtue of various government rebates, including the Queensland State Government electricity rebate and the Commonwealth Energy Bill Relief Fund (EBRF) rebate scheme, dissipated. The ABS added that the reduced impact on the CPI by the latter EBRF scheme in part reflected timing effects.
This big March 2025 quarter jump in the CPI’s Electricity expenditure class was excluded (or ‘trimmed out’) from the quarter’s Trimmed Mean CPI calculations.
The ABS press release accompanying the CPI data also noted a material decline in Services sector-related CPI, with annual Services inflation in the March 2025 quarter of 3.7% materially below the equivalent figure of 4.3% in the December 2024 quarter, and was now at a nadir last seen in the June 2022 quarter. This decline was underpinned by reduced price pressures across a broad range of services, including rents and insurance.
With the March 2025 quarter CPI data a bit higher than consensus forecasts, the knee-jerk reaction by the stock market immediately after the release of the numbers was to take some profits. But this selling was only momentary, with the local bourse bouncing back over early Wednesday afternoon trading.
Clearly many share market investors remain of the view that the RBA Board will cut interest rates again at its next meeting on 19-20 May 2025. And Australian money market traders are also in the same camp, with the domestic interest rate futures curve basically pricing in a 25-basis point reduction in the RBA’s benchmark rate at the mid-May Board meeting.
This said, interest rate bulls should always remember that the RBA’s decision-making process is not just a function of historical shifts in Australia’s underlying CPI gauges. They are also impacted by inflation expectations, which have been highly volatile of late in the face of multiple economic uncertainties (threatened trade wars included) that refuse to go away.
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