Inflation Holds Steady in Q1, Keeping Pressure on Markets and Policy Outlook

April 30, 2025 12:33 PM AEST | By Team Kalkine Media

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Inflation Holds Steady in Q1, Keeping Pressure on Markets and Policy Outlook — Image source: shutterstock

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Highlights

Q1 inflation stays above forecast at 2.4%

Core inflation returns to RBA’s target band

Retail sales and elections may shape economic sentiment

Australia’s consumer price inflation remained steady at 2.4% in the March quarter, slightly above market expectations and reinforcing speculation around future monetary policy settings. According to the Australian Bureau of Statistics (ABS), the consumer price index (CPI) rose 0.9% during the first quarter of 2025, following a modest 0.2% rise in the December quarter. Analysts had expected a 0.8% increase.

This outcome kept annual headline inflation unchanged at 2.4%, just above the consensus forecast of 2.3%. However, what stood out was the movement in core inflation—commonly referred to as the trimmed mean—which rose 0.7% over the quarter. This took the annual core inflation figure to 2.9%, a level comfortably within the Reserve Bank of Australia’s (RBA) target range of 2% to 3%. This marks the first time since 2021 that core inflation has sat within the central bank’s preferred zone.

For equity markets, the inflation print serves as a barometer for economic health and interest rate expectations. Companies across sectors including technology and financials are closely watched for their sensitivity to rate dynamics. For instance, software firm Xero (ASX:XRO) and fintech player Zip Co (ASX:ZIP) may see varying investor sentiment based on shifts in the inflation and rate environment. Meanwhile, banks such as Westpac Banking Corporation (ASX:WBC) and Commonwealth Bank of Australia (ASX:CBA) could be impacted as market participants recalibrate expectations on future cash rate movements.

Globally, inflationary trends are also influenced by geopolitical events. The acceleration of trade tensions under former US President Donald Trump’s revived policies has raised alarms over potential global inflationary pressure and recession risk. Such developments could influence resource-heavy Australian companies like BHP Group (ASX:BHP), which are exposed to global trade flows and commodity cycles.

Looking ahead, market participants will be closely monitoring upcoming Australian retail sales data, scheduled for release on Friday. These figures are expected to provide deeper insight into household spending behaviour and consumer resilience amid financial market volatility. Additionally, the federal election this weekend could add another layer of economic uncertainty or clarity depending on the outcome.

As Australia enters a critical juncture, balancing inflation, consumer confidence, and global economic risks, investors are expected to stay alert for signs from both economic releases and political developments.

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