Australia’s low inflation continues to steer the country’s economic narrative in 2025, prompting interest rate cuts and reshaping the housing and mortgage lending landscape — one still defined by limited supply and persistent market pressure.
On Wednesday, the Australian Bureau of Statistics (ABS), released its latest monthly consumer price index (CPI), revealing steady monthly inflationary levels.
The monthly CPI rose 2.4% in the 12 months leading up to April 2025, year-over-year, the same as March. Annual trimmed mean inflation — which measures underlying inflation by stripping out goods with volatile prices changes, such as annual falls in automotive fuel and electricity — increased 2.8% in April, year-over-year, up from 2.7% in March.
"The monthly report measures more goods, rather than services. So it doesn't give us the best read," Dunk told Australian Broker. "And if you listened to [RBA Governor] Michele Bullock during the RBA press conference, she really did emphasize that the RBA preferred to look at the quarterly inflation data rather than the monthly measure."
But sector differences tell a different story — one in which Australia’s rental market continues to tighten. Housing inched north 2.2%, while rent was up 5%. New dwelling purchases by owner-occupiers was up 1.2%.
"That suggests that you should see the pace of rent eventually start to pick up," Dunk said.
"We've seen rents have gone up very sharply over the last few years. That's reflected in the tightness in the rental market," the economist continued. "It's been really hard for people to find properties. And when it's hard for people to find properties, it's easier for landlords to pass on rent increases. And that's been a big thing recently."
The median national advertised rent price rose 1.6% in the March quarter, to $630 a week, according to PropTrack.
"If you look at rental vacancy rates and how tight the rental market is, there are signs that the rental market is getting a bit tighter again," Dunk said.
"You're probably starting to see the average household size shift again," the economist continued, explaining that, in the post-pandemic period, many people chose to live independently in pursuit of more personal space.
"What we've seen over the last year or so, those share houses are reforming, because of the cost of living, because rent has gone up," Dunk said. "So we're seeing all those sharehouses reform and that decreases the demand for dwellings."
She added that as rents continue to rise, people paying off a mortgage, "might get a little bit of a relief from these rate cuts. But either way, it's really challenging for people [because of the cost of living.]"
Other significant price increases in the monthly CPI were seen in health, tobacco, education, holiday travel and accommodation, and gas and other household fuels.
In the March quarter, the trimmed mean inflation rate dropped to 2.9%, down from 3.3% in the December quarter, and back within the Reserve Bank of Australia's (RBA) target inflation range of 2% and 3%. This also marked the lowest inflation rate in three years.
As expected, the nation's central bank followed suit, lowering the official cash rate (OCR) 25 basis points to 3.85%, down from 4.10%, earlier this month, the second RBA cut in 2025.
For mortgage holders, easing inflation offers welcome relief, not only through lower living costs, but also in renewed hopes for further interest rate cuts. Existing borrowers are beginning to see a modest reduction in monthly repayments, while first-home buyers are benefiting from increased borrowing capacity, adding fuel to competition in an already tight housing market.
