Australian Inflation Rate: Will It Drop Below 3% In 2024?


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Arielle Executive - Sydney, Melbourne, New York

Last updated: May 2nd, 2024

inflation forecast australia

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Arielle Executive - Sydney, Melbourne, New York

Last updated: May 2nd, 2024

Reading Time: 11 minutes

Despite slowing due to 13 interest rate rises from the Reserve Bank of Australia (RBA) across 2022-23 in pursuit of its 2-3% goal, Australia’s inflation remains sticky.

March 2024 quarter (Q1) results released in April this year  revealed the Consumer Price Index (CPI) rose 1.0%, representing an annual increase of 3.6%.

It’s a far cry from the peak of 7.8% seen in December 2022, but underlying inflation (trimmed mean) is still well-above target at 4.0%.

Monthly indicator data on inflation so far in 2024 hasn’t shown a downward trend: it held steady at 3.4% in both January and February, and increased to 3.5% in March.

Plus, cost of living pressures remain high.

In the face of a volatile global economic outlook, there are murmurs that the RBA’s could switch to a hawkish stance, and potentially lift rates again, rather than consider rate cuts later in the year.

But what do leading economists say about the odds of inflation rising again or declining further in 2024?

Key Takeaways:
Inflation remains sticky with the CPI at 3.6% — higher than expected — and households having to spend more on essentials.
Rents and services like education and insurance are still hitting hip pockets hard, reflecting domestic price pressures.
Australia’s inflation and rate-cutting cycles are expected to lag major economies like the US, so interest rate relief isn’t imminent.

Above: Australia isn’t alone in experiencing annual inflation growth above the pre-Covid average.

Australian Inflation Rate Remains Stubbornly High.

While Aussies are paying less for the basics, they’re still paying too much. Spending on non-discretionary items is still outpacing our ability to splurge.


Inflation in what are known as ‘non-tradeables’ — things like housing, rent, insurance and electricity — remains elevated at 5%.

Finding a place to live is still incredibly tough, and low vacancy rates mean rental prices keep climbing. March quarter CPI figures show rental prices rose 7.8% annually — the strongest rise in 15 years.

A more detailed ABS analysis finds capital city rental inflation outpaced regional areas in the past year, but the overall increase in rents paid since 2019 was higher for people living in regional areas.

Other significant price increases in the 12 months to March 2024 were:

  • Insurance and financial services (8.2%).
  • Education fees (5.2%)
  • Alcohol and tobacco (6.3%)
  • Medical and health services (4.1%).
  • Food and non-alcoholic beverages (3.8%).

A Bloomberg survey of global economists in January found that most were predicting rate cuts to be delayed to Q4 2024 due to Australia’s stubborn and unique inflation challenges.

With Q1 inflation hotter than expected, forecasts of rate cuts by the Reserve Bank of Australia (RBA) have been revised by many economists.


Some economists, like Judo Bank’s Warren Hogan, have said we may see multiple rate increases in 2024 to get inflation down.

Is The Australian Economy Doing Worse Than The US?

Australia’s inflation and rate cycle is lagging behind those of other major economies, particularly the US.

The US Federal Reserve lifted its cash rate higher in a shorter time span — and was expected to start easing much sooner (i.e., June).


US rate cuts are also in doubt after consistent inflationary pressure in 2024. Having confirmed three cuts as recently as March, the US Federal Reserve will likely take a “wait-and-see” approach.

Initial US inflation results from January and February 2024 were higher than expected, with a 0.3% and 0.4% rise, respectively.

The US CPI rose again in March by 0.4% bringing the annual rise to 3.5%—heralding a more restrictive policy.

However, as The Wall Street Journal reported, the personal consumption expenditures (PCE) price index is the Fed’s favoured inflation gauge. 

PCE in March 2024 was at 2.7% (up from 2.5 in February) compared to the policy rate of 5.25-5.5%. WSJ’s Nick Timiraos argues that cutting rates would still leave them in the “restrictive” zone.

Equity markets globally performed well in the first few months of 2024, but a recent report from Commbank suggests markets have been too optimistic about easing inflation and imminent rate cuts.

 The bank thinks pressures will persist for longer locally:

“In our view, given the extended timeframe for inflation to return to target suggests the RBA will stick to its view that rates need to remain at elevated levels for some time. Australia is now likely to be one of the last dollar bloc economies to begin easing.”

What Is The Australian Government’s Forecast?

In its recent Mid-Year Economic and Fiscal Outlook (MYEFO) released in December 2023, the Australian Government revised its expectations for inflation levels in Q2 2024:

“In the near term, higher global oil prices and the continued pass-through of cost pressures will apply upward pressure to headline inflation, which has been revised up to 3¾ per cent through the year to the June quarter 2024.”

 Treasury also forecast that inflation would return to the target range (2.75%) by mid-2025.

The latest CPI figures came in below the RBA’s forecast that CPI would decline to 4.5% for the December 2023 quarter.

 In revised forecasts released in February 2024, the RBA predicts a further decline to 3.2% (down from 3.5%) by December this year, with annual inflation rate hitting the target territory (3%) sometime between June-December 2025.

Above: The RBA remains ready to hoist interest rates if significant price rises continue.

Despite below-trend GDP growth predicted in the coming year, both Commbank and Westpac believe the RBA won’t need to tighten rates further to quell inflation.


Westpac’s Chief Economist Lucy Ellis said the Labor Government’s slated changes to stage 3 tax cuts – which will give a larger number of lower-income earners a tax break – would have a marginal macroeconomic impact.

The potential stimulatory effects of extra cash are offset by the financial squeeze most Australian households are under and falling real incomes.

Ellis said:

“We do not expect this to affect the RBA’s view of the inflation outlook or the future path of the cash rate.”

In a May 2024 economic insight, Commbank said stronger non-discretionary inflation meant it was predicting just one rate cut in November  2024 (its previous forecast was three cuts starting in September).

“The near-term risk sits with an interest rate hike. But we expect the RBA to be on hold over the next six months given the economy is still contracting on a per capita basis, inflation is forecast to fall further and the labour market is anticipated to loosen.” —Gareth Aird, Commbank Head of Australian Economics.

The RBA seemed to have let go of its tightening bias at its March monetary policy meeting, but it didn’t specifically rule out hikes. Recent data could force its hand.

Predictions for the consumer price index headline rate in 2024 from the banks include:

Bank2024 Q22024 Q4
Westpac3.1% annual change
3.5% trimmed mean
3.0% annual change
3.1 trimmed mean
NAB3.5% annual change
3.7 trimmed mean
3.1% annual change
3.1% trimmed mean
CommBank3.0% annual change
ING3.8% annual change3.3% annual change

What Factors Cause Inflation To Persist?

You can look at the Australian economy in one of two ways:

  • Close-up. Consider interest rate rises, inflation data, food prices, unemployment rate, etc.
  • Big picture. Study geopolitical issues, long-term trends and historical patterns.

Both are important. But in times of stress, humans overestimate the impact of the former and overlook the indirect (yet powerful) impacts of the latter.

The following micro and macro issues could have an impact in 2024:

1. Geopolitical Turmoil.

Further slowing of growth in the Chinese economy and ongoing conflicts in Russia/Ukraine and the Middle East are of concern.

Expert Tip.

Market shocks could also arise from upheaval caused by changing governments, as the US, UK and India all head to the polls this year.

It’s also escalated Israel’s conflict with Iran, including triggering the first-ever direct strike on Israel by Iran in April, a subsequent Israeli counterstrike — and fears of a wider regional war breaking out. 

When commodity sources and vital supply routes are disrupted, prices tend to increase.

In addition to supply disruptions, oil-producing countries — such as OPEC members and Russia — can have an outsized influence on the economies of rivals by manipulating the price of crude oil exports through reduced production.


More expensive oil contributes to already strained cost of living in major economies like the US, which could — for instance — negatively affect Biden’s re-election bid.

2. Rising Employment And Wages.

The Australian job market was on fire in 2023, with the lowest unemployment in history and a 7.1% rise in labour costs (the fastest rise in any other advanced economy).

The seasonally-adjusted unemployment rate remained at a low 3.8% in the latest jobs figures released in February 2024.

Economic forecasts point to an expected softening of the labour market in 2024.

Still, employment has been resilient.

The Albanese government has also said it will argue for an increase to a minimum and award wages this year to ease the cost of living pressure on low-paid workers.

Expert Tip.

Combined with rising real wages, it gives people more money to spend, increasing demand for goods and services and the impetus for corporations to lift prices.

3. Government Spending. 

Fiscal policies impact how consumers and businesses make financial decisions — which is why major government infrastructure projects, investments, subsidies and stimulus come under close scrutiny.

Despite the recent political brouhaha around the revised stage 3 tax cuts, the Treasury estimates they will add a measly 0.1% to inflation.  

Big builds can spill over into inflation by heating up demand for materials and labour.

Despite Canberra’s attempts to rein in the public infrastructure spending boom, these efforts will do little to prevent further rate rises.

4. High Migration Levels. 

Albanese’s government is facing heat after Australia’s migration boom dwarfed treasury forecasts, with a net gain of over 500,000 people in 2023, according to ABS stats.

Returning foreign students added to the demand, driving up services inflation and rent prices.

Australia’s rental market is still tight, resulting in rental price inflation rising 7.8% annually according to the latest CPI numbers.

It would have been a 9.5% annual increase without the availability of subsidies through the Commonwealth Rent Assistance (CRA) program.

Above: Some of the most significant price rises occurred in the rental market.

What Is The History Of Inflation Rates In Australia?

Australia saw several spikes in the inflation rate in the 70s, 80s and 90s.

The RBA adopted the 2-3% inflation target in the early 1990s, with cash rate changes as the primary tool to stimulate or dampen economic activity and keep inflation stable.

After tracking within the target range since around the start of the 2000s, inflation reduced significantly in 2020 as a result of COVID-19 lockdown measures.

Pent-up demand from that period was cited as a major cause of skyrocketing inflation as pandemic restrictions eased.

Australia’s inflation rate hit a 22-year peak in December 2022, reaching 7.8%.

Above: Consumer price index averages can obscure price movements in different parts of the economy. Services inflation is still high, while food inflation is falling. Fruit and vegetable prices have recorded the biggest falls.

How Does Australia’s CPI Compare Globally?

Australia’s inflation rate is one of the worst among advanced economies.

While many countries — the US and UK included — have experienced rising inflation of late, there’s evidence that inflation is easing more quickly elsewhere.

Above: The Economist coined a measure of “inflation entrenchment”, a statistic used to demonstrate the stickiness of inflation. Australia is leading the pack, likely due to some of the most generous pandemic stimulus measures.

In its Interim Report released September 2023 titled Confronting Inflation and Low Growth, the OECD said that while inflation was well above central bank targets in almost all G20 economies, core inflation was beginning to decline at a moderate pace.

However, services inflation was persistent and was set to remain so.

It’s driven by labour costs, energy prices and the “sizeable weight of housing rental prices” in some countries (particularly the US).

Did You Know?

The OECD predicted global growth to dip in 2024, with most advanced economies being held back by a tightening bias needed to rein in inflation — but said risks remain tilted to the downside.

In particular, a key risk is whether hawkish monetary policy delivered so far will be sufficient to slow inflation down to target levels.

“Persisting cost pressures or renewed signs of an upward drift in inflation expectations would compel central banks to keep policy rates higher for longer than expected and potentially expose financial vulnerabilities in the balance sheets of financial institutions,” according to the OECD.


These could trigger an abrupt reassessment of liquidity, duration and credit risks.

Above: Projected inflation rates for 2024 (Australia, Eurozone, UK, US, Canada & Japan).

Frequently Asked Questions About Australian Inflation Rate.

If you find macro- and microeconomic concepts difficult to wrap your head around, you’re not alone. Get up to speed with my definitions below.

Headline Consumer Price Index vs Underlying CPI: What’s The Difference?

Headline and underlying CPI are two different ways to interpret the price change data collected by the ABS.

  • Headline inflation describes the overall quarterly and year-over-year change in goods and services prices, based on the entire basket of items the ABS uses to calculate price changes. This can be distorted by Black Swan events (e.g., when flooding hurt veggie producers, causing a spike in the price of humble lettuce).
  • Underlying inflation is based on analytical measures of the CPI, intended to omit or smooth over quarterly price volatility. Underlying inflation calculations provided by the ABS include the Trimmed mean and Weighted median.

Another way CPI is analysed is the ‘Seasonally adjusted’ figure that accounts for regular seasonal price movements, such as an increase in the price of education in March each year.

The measure spreads out the impact of ‘seasonal’ pricing over the year.

Inflation is currently slightly higher based on the Trimmed mean, at 4.0%.

Above: Consumer Price Index vs Trimmed Mean. CHANGE

How Is The Consumer Price Index (CPI) Calculated?

Staff from the ABS investigate current prices on a fixed ‘basket’ of things that an Australian household would typically spend their money on, like groceries, housing, transport, healthcare, entertainment, and utilities (around 1 million prices are collected every quarter).

They calculate the price change from the previous quarter in aggregate to determine an overall inflation rate.

  • The ABS also publishes price changes across various groupings of goods and services — as some areas contribute more significantly to headline inflation.
  • For example, in the 12 months to the March 2024 quarter, insurance prices rose 16.4%, the highest annual rise since 2001.

What Is Inflation?

Inflation is a consistent, economically significant price rise across the economy.

Practical Example.

If the average price of insurance and financial services rose by $1,000 across the country, that would be considered inflation. If the price of these services rose in a single city, it would not be considered inflation.

Most often, inflation is caused by an imbalance in the supply and demand of money.

Why Is Inflation Dangerous?

Inflation can become a self-sustaining cycle. History is full of examples where out-of-control inflation brought relatively strong economies to their knees.

  • Higher prices encourage workers to demand higher pay.
  • Higher pay translates into higher overheads for businesses.
  • Businesses charge higher prices to maintain profitability.

Higher prices make goods and services less affordable to everyday people, who demand higher wages again.

What Caused The Latest Spike In Australia’s Inflation?

During lockdowns, the Australian government rolled out one of the most generous stimulus packages in the world.

Fuelled by what’s known as quantitative easing (aka “printing more money), the program increased the supply of money and loosened lending criteria to keep businesses (and people) afloat.

Can Inflation Lead To A Recession?


Rises in inflation, combined with interest rate rises, can force people to spend less while encouraging businesses to lay off employees. Unemployed people are less likely to buy goods and services, accelerating the downturn.

Did You Know?

The definition of ‘recession is two consecutive quarters of negative GDP growth.

Final Words On Rising Inflation Rate In Australia.

While there’s always a risk that prices will continue to surge, most experts agree Australia’s inflation rate will trend downward in 2024.

It’s expected that fewer supply constraints and reduced consumer spending — due to Aussies feeling the impact of cost of living — will both reduce underlying price pressures.

But nobody knows for sure whether the monetary policy tightening we’ve already seen — with the cash rate now at 4.35% — will slow down spending enough and how the chips will fall in relation to other macroeconomic factors like global supply, GDP growth and unemployment.


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    Given that China’s economy is going down the toilet how the heck do we expect an appreciation of the Aussie in 2024 ? We are tied to China.

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