Australia CPI Inflation Rate: Data, Forecast & Trends

As of March 2025 (the latest official quarterly data), Australia's Consumer Price Index (CPI) stood at 2.4% on a year-on-year (YoY) basis. This rate remained unchanged from December 2024 and represents a significant moderation from the peak of 8.4% recorded in December 2022. The Reserve Bank of Australia (RBA) targets an inflation rate of 2-3% on average over the medium term, and this latest reading brings headline inflation squarely within that target band, a positive development for the Australian economy. The monthly CPI indicator, which provides more frequent data, also showed a 2.4% rise in the 12 months to March 2025.

A granular analysis of the CPI components for the March 2025 quarter provides insights into the drivers of this moderated inflation. Services inflation eased to 3.7% YoY, the softest rate since Q2 2022, down from 4.3% in Q4 2024. This easing was primarily driven by slower increases in rents and insurance costs, indicating a moderation in some of the more persistent inflationary pressures. Rents, while slowing, were still running above 5% YoY in March 2025.

However, this deceleration in services was partly offset by a pick-up in goods inflation, which rose to 1.3% YoY in March 2025 from 0.8% in Q4 2024. This increase was largely attributed to a surge in electricity prices, which climbed by 16.3% in Q1 2025, after a 17.3% decline in Q4 2024. This volatility in electricity prices is linked to the timing and impact of government energy bill rebates. Food inflation also accelerated slightly to 3.2% YoY in March 2025, up from 3.0% in Q4 2024, driven by higher costs for meat, seafood, fruits, and vegetables. Additionally, alcohol and tobacco prices increased by 6.7% YoY in March 2025, largely due to higher excise duties on tobacco. Transportation costs, particularly automotive fuel, showed a decline of 7.6% YoY in March 2025, providing some disinflationary impulse.

Australia's official CPI is released quarterly. As such, looking at the quarterly changes, the CPI rose by 0.9% in Q1 2025, following two consecutive quarters of 0.2% rises. This acceleration in the quarterly rate was primarily driven by Housing (+1.7%), Education (+5.2%), and Food and non-alcoholic beverages (+1.2%). This suggests that while annual inflation has moderated, there was some quarterly momentum in specific categories.

Australia's average inflation rate for 2024, as measured by the annual Consumer Price Index (CPI), showed a significant moderation throughout the year. Based on official quarterly data, the year-ended CPI inflation rates were 3.6% in March, 3.8% in June, 2.8% in September, and a notable 2.4% in the December quarter. Averaging these figures yields an annual inflation rate of approximately 3.15% for 2024.

This downward trend brought inflation closer to the Reserve Bank of Australia's (RBA) target band of 2-3%. Factors contributing to this deceleration included falls in electricity and automotive fuel prices, partly due to government energy bill relief rebates. While goods inflation eased considerably, services inflation remained elevated, reflecting persistent domestic cost pressures. The RBA's preferred measure of underlying inflation, the trimmed mean, also declined, reaching 3.2% in the December 2024 quarter.

Australia has largely maintained a track record of stable and moderate inflation over the past three decades, broadly within the RBA's target band of 2-3%. Following the inflationary surges of the 1970s and 1980s, the adoption of an inflation-targeting framework by the RBA in the early 1990s proved highly successful in anchoring inflation expectations.

From the mid-1990s through the 2010s, annual CPI inflation typically fluctuated within or close to the 2-3% target. There were periods of deviation, such as during the Global Financial Crisis (GFC) in 2008, when inflation briefly exceeded 5% due to commodity price spikes, before quickly returning to target as demand softened. Conversely, there were also periods of very low inflation, particularly in the mid-2010s, with annual CPI falling below 2%, reflecting weak global growth and subdued domestic demand.

The recent inflationary surge, which commenced in late 2021 and peaked in December 2022, was a significant departure from this long-term stability. This was primarily driven by a powerful combination of factors:

• Strong post-pandemic demand rebound: Fueled by fiscal stimulus and pent-up consumer spending.
• Global supply chain disruptions: Impacting the availability and cost of goods.
• Energy price shock: The Russia-Ukraine conflict significantly increased global oil and gas prices.
• Tight labor market: Leading to upward pressure on wages.

The RBA responded by aggressively hiking interest rates, from a record low of 0.1% in May 2022 to 4.35% by November 2023. This monetary tightening, alongside the easing of global supply chain pressures and commodity price moderation, has been instrumental in bringing headline inflation down significantly to its current level.

The Reserve Bank of Australia (RBA) pays close attention to measures of underlying inflation, often referred to as "core inflation," as they provide a clearer picture of persistent price pressures by excluding volatile items. The RBA's preferred measures are the Trimmed Mean CPI and the Weighted Median CPI, both calculated by the Australian Bureau of Statistics (ABS).

• Headline CPI reflects the change in prices of the entire basket of goods and services.
• Trimmed Mean CPI is calculated by excluding the 15% of items with the largest positive price changes and the 15% with the largest negative price changes, providing a measure of the central tendency of price changes.
• Weighted Median CPI is the price change at the 50th percentile by weight of the distribution of price changes.

In March 2025, the RBA's Trimmed Mean CPI increased by 2.9% YoY, while the Weighted Median CPI rose by 3.0% YoY. This means that core inflation has fallen within the RBA's 2-3% target range. This is a significant development, as it suggests that underlying inflationary pressures are indeed easing, not just those driven by volatile external factors. The decline in services inflation (to 3.7% in Q1 2025) is a key factor contributing to this improvement in core measures. While headline inflation has been influenced by government energy rebates, the easing in core inflation signals a genuine moderation in domestic inflationary forces.

While Australia has made considerable progress in bringing inflation back into the target band, several key risks could still influence its future trajectory:

• Persistence of Services Inflation: Despite recent moderation, services inflation remains elevated compared to goods inflation. Wages are a significant component of service costs. If wage growth remains persistently strong, or if productivity growth falters, it could keep services inflation sticky above the RBA's target, making the final disinflationary push challenging. The RBA will be closely watching wage price index data.
• Global Economic Slowdown and Geopolitical Tensions: A sharper-than-expected slowdown in the global economy, particularly among Australia's major trading partners (like China), could reduce demand for Australian exports and potentially lead to disinflationary pressures. Conversely, escalating geopolitical tensions (e.g., in the Middle East, or renewed trade conflicts) could trigger new supply chain disruptions or commodity price spikes, reigniting imported inflation.
• Domestic Demand Resilience: The Australian economy has shown remarkable resilience to interest rate hikes, partly supported by strong population growth. If household consumption and business investment prove more resilient than expected, driven by robust labor market conditions or fiscal stimulus, it could exert renewed upward pressure on demand-side inflation, necessitating further monetary tightening.
• Fiscal Policy and Cost-of-Living Relief: While government energy bill rebates have temporarily suppressed headline inflation, their eventual unwinding or the introduction of new large-scale cost-of-living relief measures could create inflationary impulses. The timing and scale of such measures will be crucial in determining their impact on price levels.
• Housing Market Dynamics: Australia's housing market remains a significant factor. While rent inflation has eased slightly, it remains elevated. If housing supply shortages persist and population growth continues to be strong, it could keep rental prices high, contributing to services inflation and broader cost-of-living pressures. High interest rates have also flowed through to increased mortgage costs for homeowners, which indirectly impacts their discretionary spending.
• Inflation Expectations: Although inflation expectations have generally come down in line with headline figures, there is always a risk that they could become de-anchored if inflation proves more persistent than anticipated. If businesses and consumers begin to expect higher inflation consistently, it can embed inflationary pressures through wage and price-setting behavior. The RBA's consumer inflation expectations for May 2025 stood at 4.1%, still above the target band.

Australia Inflation Data