The major banks have maintained their prediction of a May cash rate hike, despite the all-important quarterly trimmed mean figure undershooting projections.
Australia’s major banks have said a softer‑than‑expected inflation print for March is not enough to deter the Reserve Bank of Australia (RBA) from delivering a third consecutive 25‑basis‑point cash rate rise at its May meeting.
The Australian Bureau of Statistics’ (ABS) March consumer price index (CPI) indicator showed annual headline inflation lifting to 4.6 per cent, up from 3.7 per cent on February’s numbers.
However, annual trimmed mean inflation held steady at 3.3 per cent, slightly softer than many economists had forecast.
Housing, transport and food and non‑alcoholic beverages made the biggest contributions – with prices in those categories climbing 6.5 per cent, 8.9 per cent, and 3.1 per cent respectively.
On a monthly basis, the CPI rose 1.1 per cent in both original and seasonally adjusted terms.
ABS head of prices statistics Sue‑Ellen Luke said the March result “was driven by transport, primarily due to a 32.8 per cent monthly increase in automotive fuel prices.”
She emphasised that this “read pre‑dates the halving of the fuel excise on 1 April”.
Luke said the result was the “largest monthly increase since the series began in 2017,” and that “annual CPI inflation is the highest it’s been since September 2023.”
The release also contained the full March‑quarter figures, with headline CPI up 1.4 per cent over the quarter and the trimmed mean measure rising 0.8 per cent.
ANZ sees CPI moderation – yet not enough to dissuade hike
ANZ’s head of Australian economics, Adam Boyton, read the March numbers as evidence that price pressures were easing at the margin, but were still too strong to justify a May pause.
“Despite today’s softer than expected Q1 trimmed mean print of 0.8 per cent q/q, we continue to expect the RBA to increase interest rates by 25bp at its May meeting,” he said.
At the same time, he pointed to positive signs in the release, highlighting that the trimmed mean was “softer than the RBA’s likely forecast of around 0.9 per cent q/q from February.”
“It appears some of the momentum in underlying inflation evident in late 2025 has been moderating.”
Yet ANZ said it expected headline inflation to climb further before it turned down.
“We are currently expecting headline inflation to peak around 5 per cent y/y in Q2.”
ANZ’s official forecast remains for a 25‑basis‑point increase in May, followed by a prolonged period of steady rates.
CBA predicts ‘line ball’ May decision
The Commonwealth Bank of Australia (CBA) also judged that the RBA was more likely than not to lift the cash rate next Tuesday - yet said the softer trimmed mean result had strengthened the case for patience.
“Headline CPI printed as expected at 1.4 per cent/qtr but trimmed mean CPI printed at 0.8 per cent, below RBA, market and our expectations of 0.9 per cent/qtr,” CBA’s head of Australian economics Belina Allen said.
Allen characterised the May decision as finely balanced
“A third rate hike in May is another line ball decision,” she said.
Despite that, CBA’s central case remains that the RBA will choose to move again in May.
“We expect the RBA to hike the cash rate in May by 25bp to 4.35 per cent,” Allen outlined.
Allen said she expected the debate to be more intense than in March, with the divide centred on differing assessments around inflation versus growth.
“We expect another split decision with the softer trimmed mean CPI and recent falls in sentiment surveys likely to bolster arguments to leave the cash rate on hold.”
In CBA’s base case, May will mark the end of the tightening phase, with the RBA then pursuing an extended pause.
“After May, we expect the RBA to remain on hold,” Allen said.
Westpac says lights ‘flashing bright red’
Westpac took the most hawkish view and treated the data as evidence that the oil shock was seeping into a broader range of prices - forcing the RBA to remain on the front foot.
“We reaffirm our expectation that the RBA Monetary Policy Board (MPB) will raise the cash rate by a further 25bps at its May meeting, to 4.35 per cent,” Westpac’s chief economist Luci Ellis said.
She added that signs of a pass‑through from the oil price shock were already present in the data, even if they were not yet overwhelming.
“Today’s CPI data nonetheless show scattered signs of pass-through to other prices,” she said.
Ellis also stressed that the trimmed mean inflation remained too high for the RBA to ignore.
“Trimmed mean measure of inflation is still too high for the RBA to walk past, even though it was a touch lower than our expectations,” Ellis said,
“The March inflation data will have the RBA’s inflation warning lights flashing bright red.”
Westpac is still forecasting that the RBA will hike in June and August.
“We hold to our base case that there will be two further rate hikes after May, in June and August,” Ellis said.
NAB continues to predict May hike, followed by lengthy hold
National Australia Bank’s (NAB) head of Australian economics, Gareth Spence, placed the focus on trimmed mean as the key policy indicator, and viewed the outcome as modestly better than feared.
“At 0.8 per cent qoq this was slightly softer than NAB and consensus expected, but in line with the RBA’s Feb SoMP forecast,” he said.
Yet he said the RBA’s projections were drawn up before the escalation in the Middle East and did not anticipate the sharp rise in fuel prices.
“Overall, these data are dated given the unfolding oil price shock and the RBA will remain alert to second round impacts,” Spence said.
NAB has held in place its prediction of a single May rise, followed by a lengthy hold period.
“We continue to see one more 25bps hike by the RBA in May, before they remain on hold until mid-to-late 2027,” Spence outlined.
[Related: Stable jobless figures give RBA headroom to hike, say majors]
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