Inflation prints higher than expected but cuts still on the cards

Justin Smirk
03:15pm April 30 2025

Westpac Economics anticipates the Reserve Bank of Australia will cut rates by 25 basis points at its meeting on May 19-20, says Senior Economist Justin Smirk.

Headline inflation has exceeded Westpac Economics estimates, holding at 2.4 per cent for the year, but has not impacted the team’s base case of rates cutting in May. 

Annual trimmed mean inflation, the preferred measure of core inflation by economists and the Reserve Bank of Australia, has moderated to within the central bank’s target range to 2.9 per cent for the first time since 2021. This was a reduction from 3.3 per cent in December and only 0.1 per cent shy of our team’s forecast of 2.8 per cent. 

For this reason, we still anticipate the RBA will cut rates by 25 basis points at its meeting on May 19-20. 

Headline inflation came in higher than expected due to stronger than expected holiday travel prices and a larger than expected boost in health costs. 

We are seeing some headline measures being boosted by electricity prices as the cost-of-living rebates, particularly in the states, are rolling off. For example, Queensland’s $1,000 lump sum cost of living rebate is rolling out, boosting electricity prices. 

So, although the cost-of-living rebates had been keeping inflation down, they’re now starting to boost inflation, and that story will continue into next year as the federal rebates roll off as well. 

Looking at today’s print, we are still seeing a moderation in housing costs, so while rent inflation remains quite strong, it has slowed significantly. Dwelling prices are falling and expected to continue to fall. 

We’ve seen soft wage rises come through last year and that’s been reflected in a moderation in market services inflation, a key measure of domestic inflationary pressures. 

At this point in time, we’re still seeing falling pricing in clothing, footwear and household goods – that’s continuing to hold inflation down. 

More critically, the core inflation measures continue to show a moderation in inflation. We’re seeing that both in market services as well as housing costs. 

That's giving us more confidence that inflation is moderating from both external and domestic forces, opening the door for the RBA to cut rates in May. 

Westpac Economics expects three more rate cuts totalling 75 basis points, including one in May, with additional cuts expected in August and November. 

Justin Smirk

Justin has 17 years’ experience in Financial Markets. He joined Westpac in 1999 following his early training at the Reserve Bank of Australia. He has spent time in Westpac’s London office and has had a secondment as Chief Economist at St George Bank. Justin’s areas of interest are the international economy, commodity markets and the resources sector. He also analyses the Australia labour market and prices.

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