Australia’s annual inflation rate falls to 3.6 per cent

Australian inflation has come in hotter than expected after lifting 3.6 per cent in the 12 months to March.

But the consumer price index also cooled from 4.1 per cent in the previous corresponding year, the Australian Bureau of Statistics reported.

On a quarterly basis, inflation rose one per cent, up from 0.6 per cent in the three months to December, the bureau said on Wednesday.

The ABS recorded an annual rise of 3.4 per cent in Perth, a slight dip from the 3.6 per cent CPI growth reported in the March quarter.

Consensus forecasts had the quarterly rate rising 0.8 per cent in the three months to March for an annual pace of 3.5 per cent.

Bureau head of prices statistics Michelle Marquardt said price rises across education (5.9 per cent), health (2.8 per cent), housing (0.7 per cent), and food and non-alcoholic beverages (0.9 per cent) had contributed to the quarterly increase.

"While prices continued to rise for most goods and services, annual consumer price index inflation was down from 4.1 per cent last quarter and has fallen from the peak of 7.8 per cent in December 2022," she said.

Premier Roger Cook said the data showed balance was coming back into the state economy.

"WA has the lowest inflation rate of anywhere else in the country," he said.

"That's obviously a great and welcomed news, and will provide Western Australians who are dealing with the cost of living with much relief."

Fast-rising prices have been putting pressure on Australian households and prompted the Reserve Bank to embark on an aggressive interest rate hiking cycle starting in May 2022.

With the economy slowing, and inflation heading in the right direction, the focus has shifted to the prospect of interest rate cuts by the central bank.

Canaccord Genuity Australia chief investment strategist Tony Brennan said the data showed less further decline in inflation this year than expected.

Mr Brennan said the monthly CPI figures showed no further progress month to month in lowering inflation.

“Along with the still relatively tight labour market, in which the unemployment rate has only risen about half a percentage point from its low, this is likely to leave the RBA firmly on hold, and still not ruling anything in or out in terms of the next move in interest rates,” he said.

“The overall inflation rate fell from 4.1 per cent in the December quarter last year to 3.6 per cent in the March quarter this year, showing further progress towards the RBA’s 2-3 per cent target band, and a breakdown showed both goods and services inflation falling further, and tradeable and non-tradeable items inflation also both falling further, which is a positive development.

“However, underlying inflation, excluding more extreme price movements, and as measured by the trimmed mean series, eased less in the quarter, from 4.2 per cent to 4 per cent, and the decline in services inflation was also less than it was quarter to quarter last year, and remained at 4.3 per cent, with categories of high inflation including rent and insurance rising in the quarter.”

Moody's Analytics economist Harry Murphy Cruise said inflation would keep easing but progress would be slow.

"From 3.6 per cent in the March quarter, we see inflation ending the year at 3.2 per cent and returning to the top of the Reserve Bank of Australia's target band of 2 per cent to 3 per cent in the first half of 2025," he said.

"Service inflation is the main culprit holding back progress. Insurance premiums jumped by their most in 23 years, rents grew at their fastest annual pace face since 2009, and education fees saw their largest quarterly rise in 12 years."