The Reserve Bank could use fresh inflation insights to gauge the depth of further rate cuts as global uncertainty threatens Australia’s economic progress.
Consumer price data for April, to be released on Wednesday, will help guide the RBA on future changes after it reduced the cash rate to its lowest level in two years.
The decision showed the central bank was moving in a more dovish direction as Australia’s main inflation measure returned to its target range of two to three per cent, NAB economists Michelle Shi and Gareth Spence said.
The RBA on Tuesday cut the official cash rate by a quarter of a percentage point to 3.85 per cent.
NAB economists predict another three rate cuts in the second half of 2025, bringing the cash rate to a “broadly neutral” stance of 3.1 per cent by November.
But US tariff drama and the unpredictability of Donald Trump’s economic actions will continue to loom large over RBA meetings.
High levels of global uncertainty are likely to persist even as trade tensions ease between the US and China, the NAB economists warn.
“Unless pushed, the RBA could take a more gradual path towards neutral while watching the inflation data over time,” they said.
Over the previous decade, Australian inflation has rarely been “just right”.
JP Morgan’s chief economist for Australia and New Zealand, Ben Jarman, warned the monthly inflation indicator could suggest “too much of a good thing” and drop below the target band.
However, quarterly trimmed mean inflation – the RBA’s preferred measure – was more likely to be sticky due to a strong jobs market, which meant core inflation could stay within the bank’s target into 2026, Mr Jarman said.
Rate cuts could lead to a rebound in home construction, Housing Industry Association chief economist Tim Reardon said, as the Australian Bureau of Statistics prepares to release building approvals data on Friday.
While the sector is already showing signs of improved confidence with homebuilding expected to increase across the next five years, long-term issues such as land shortages pose risks to affordability and reaching national supply targets.
“Australia has the capacity to deliver, but it will take a co-ordinated response from all three tiers of government to overcome these constraints,” Mr Reardon said.
Retail trade figures for April are also due on Friday after the RBA flagged consumer spending had been softer than expected in recent months.
This will be the one of the last retail trade releases before the statistics bureau replaces the series with a broader household spending indicator.
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