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Rise in core inflation won’t rule out possibility of further rate cuts
Core inflation has risen to an annual rate of 2.8% in April, from 2.7% in March, however, this minor rise is unlikely to be cause for alarm for the RBA.
25 May 2025
Core inflation has risen to an annual rate of 2.8% in April, from 2.7% in March, however, this minor rise is unlikely to be cause for alarm for the RBA.
The ABS monthly Consumer Price Index (CPI) Indicator, released today, shows annual headline inflation held steady at 2.4% from March to April for the third month in a row, while core inflation has sat between 2.7% and 2.8% since December 2024.
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| Monthly CPI Indicator – annual movement |
||
|---|---|---|
| Month | CPI indicator | Annual trimmed mean |
| June 2024 | 3.80% | 4.10% |
| July 2024 | 3.50% | 3.80% |
| August 2024 | 2.70% | 3.40% |
| September 2024 | 2.10% | 3.20% |
| October 2024 | 2.10% | 3.50% |
| November 2024 | 2.30% | 3.20% |
| December 2025 | 2.50% | 2.70% |
| January 2025 | 2.50% | 2.80% |
| February 2025 | 2.40% | 2.70% |
| March 2025 | 2.40% | 2.70% |
| April 2025 | 2.40% | 2.80% |
Source: ABS Monthly Consumer Price Index Indicator.
Big banks still expect two to three more cuts to come
Inflation might be relatively steady, however, CBA, Westpac and ANZ all expect two more cash rate cuts in the cycle, with the next one arriving in August.
NAB expects the RBA will cut again at the next meeting in July, with a total of three cuts before the end of this year.
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| Current big four bank cash rate forecasts | |||
|---|---|---|---|
| Next move | Total number of cuts | Cash rate at end of cutting cycle | |
| CBA | -0.25% in Aug | 2 | 3.35% |
| Westpac | -0.25% in Aug | 2 | 3.35% |
| NAB | -0.25% in Jul | 3 | 3.10% |
| ANZ | -0.25% in Aug | 2 | 3.35% |
What would the impact of multiple cuts look like for borrowers?
An owner-occupier with a $600,000 debt today and 25 years remaining on their loan could see their monthly repayments drop by $90 on the back of one more 0.25 percentage point RBA cut, assuming the banks pass it on in full to existing variable rate borrowers.
However, if there are two more cuts from this point on, this borrower could see their repayments drop by a total of $178 by the end of the year. Three cuts would equate to a drop of $265 in total between now and the end of the year.
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| Potential impact of rate cuts on monthly repayments: $600k loan |
|||
|---|---|---|---|
| Rate | Monthly repayments | Cumulative change in monthly repayments | |
| Current | 5.81% | $3,796 | |
| 1 cut (Aug) | 5.56% | $3,707 | -$90 |
| 2 cuts (Aug + Sept) | 5.31% | $3,618 | -$178 |
| 3 cuts (Aug + Sept, Nov) | 5.06% | $3,531 | -$265 |
Source: Canstar.com.au. Notes: based on an owner-occupier paying principal and interest starting in June 2025. Calculations assume there are cuts in August, September and November and that the banks pass it on the following month.
Cash rates of the world
The Reserve Bank of Australia is not the only central bank lowering rates.
New Zealand’s central bank, RBNZ, cut its official rate by 0.25 percentage points to 3.25% today, on the back of CPI being in the target band and there being ‘significant spare capacity in the economy’.
Other developed economies around the world, including the United Kingdom, European Union and Canada have all cut official rates by at least 0.25 percentage points since the start of the year.
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| Cash rates of the world | |||||
|---|---|---|---|---|---|
| Official rate | Last change %-pts | Headline inflation | Core inflation | Unemployment | |
| Australia | 3.85% | -0.25 in May 2025 | 2.40% | 2.9%* | 4.10% |
| United States | 4.25% – 4.50% | -0.25 in Dec 2024 | 2.30% | 2.80% | 4.20% |
| United Kingdom | 4.25% | -0.25 in May 2025 | 3.50% | 3.80% | 4.50% |
| European Union | 2.40% | -0.25 in Apr 2025 | 2.20% | 2.70% | 6.20% |
| Canada | 2.75% | -0.25 in Mar 2025 | 1.70% | 3.10% | 6.90% |
| New Zealand | 3.25% | -0.25 today | 2.50% | 2.80% | 5.10% |
| Japan | 0.50% | +0.25 in Jan 2025 | 3.60% | 3.50% | 2.50% |
Source: Canstar.com.au. Notes: ECB refers to the main refinancing options. *Monthly indicator is 2.8%.
Core inflation likely no cause for concern
Canstar’s data insights director, Sally Tindall says, “Core inflation might have ticked up slightly in this monthly dataset, but it’s not likely to be a cause for concern for the Reserve Bank.”
“While progress in getting core inflation back to the target of 2.5 per cent has stalled, at least it’s stalling within the target band.
“The Board believes there is still restrictiveness in the current cash rate of 3.85 per cent and is open to lowering it further, particularly if core inflation gets out of neutral and closer to the target.
“The central bank is also on high alert for risks that could come from further global volatility and ready to act should it need to.
“The big bank economic teams certainly expect we’ll see between two and three more cuts in the months ahead, however, borrowers should not take this as a given.
“If you’ve got a mortgage, focus on what to do with the relief from the February and May cuts, rather than counting on future relief that might not fully materialise.
“There’s only two days to go before the rate cuts from CBA, NAB, and ANZ take effect.
“This means the majority of variable mortgage interest rates will be lower from Friday. This is a great time to take stock of your rate and consider whether your repayments are at the right setting for your finances and your financial goals.”
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Cover image source: Halfpoint/Shutterstock.com
This article was reviewed by our Finance Editor Jessica Pridmore before it was updated, as part of our fact-checking process.
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