Inflation has leveled off — at least for now — helping stabilize the case for a near-term interest rate pause.
The Australian Bureau of Statistics (ABS) released its latest consumer price index (CPI) for the 12 months ending in April on Wednesday, revealing that both headline inflation and trimmed mean remain elevated above the Reserve Bank of Australia's (RBA) target band, with headline CPI cooling slighty for now.
Headline CPI was 4.2% in the 12 months leading up to April, down from 4.6% in March. Meanwhile, trimmed mean inflation — which measures underlying inflation by stripping out goods with volatile prices changes and what many economists consider a better indicator of inflationary pressures — rose to 3.4%, up from 3.3% the month before.
The biggest contributors were housing, up 6.3%, transportation, and food and alcoholic beverages. Rent rose 3.5% in the 12 months to April, driven by low vacancy rates across Australia's capital cities. Meanwhile, new dwellings rose 4.7%, up from 4.5% in the March print, thanks to higher construction, labour and materials costs. Insurance also rose to 4.5%, as a result of rising insurance premiums for houses, home content and motor vehicle insurance.
The slowdown in headline CPI was due, at least in part, to the government's decision to temporarily cut the fuel excise in half. While electricity costs surged 18.6% in the year leading up to April, the figures actually reflect a slowdown when compared with the 24.2% jump in the 12 months to March, or the 32.8% increase in fuel prices in March alone, month-over-month.
But even with the declining fuel costs, Senior Economist at Commonwealth Bank of Australia (CBA) Trent Saunders warned that "underlying inflation pressures remained firm."
In fact, inflation is still above the RBA's target range of 2% to 3%. The nation's central bank has remained steadfast that it will not consider easing monetary policy until inflation is back within the band.
This year has provided little stability for mortgage holders and investors who have been navigating rising living costs, looming tax changes, shifting government policies, and mounting global uncertainty, all of which has driven prices higher, including in global oil markets. In 2026 alone, the RBA has lifted the official cash rate (OCR) three times, taking it to 4.35%.
Many mortgage holders and would-be homeowners have spent recent weeks anxiously watching for signs of relief from the nation’s central bank.
The most recent labour report showed some early indications that pressure in the economy may be starting to ease. April's job report showed that unemployment rose slightly higher than expectations to 4.5%, prompting National Australia Bank (NAB) — the last of Australia’s Big Four banks — to revise its outlook. All four major banks are now forecasting a rate pause at the RBA’s June meeting.
A rate pause would bring welcome relief to mortgage holders and investors across the country.
Hobart-based economist Saul Eslake said the minutes from the RBA’s May meeting suggest the central bank now believes the current cash rate is already slowing domestic spending.
"And that — and I think they said this more or less explicitly in the minutes — that means that they can now afford to wait and see how the data evolves before deciding whether they need to do any more rate hikes," Eslake told Australian Broker.
The economist's interpretation was reinforced by the RBA minutes themselves, which read: "Members judged that, while it was still uncertain, financial conditions would probably be somewhat restrictive after this decision. They therefore agreed that the decision would give the Board space to see how the conflict in the Middle East develops and Australian households and businesses respond. They also agreed that any assessment of how the incoming data could change the outlook should acknowledge that monetary policy could not alter the near-term trajectory of inflation and, additionally, that output growth would likely be lower than potential growth for some time."
