AUSTRALIAN inflation surprisingly remained steady in January, supporting the case for the Reserve Bank of Australia (RBA) to begin cutting interest rates later this year.

The consumer price indicator advanced 3.4 per cent from a year earlier, below economists’ estimates of 3.6 per cent and unchanged from December, Australian Bureau of Statistics (ABS) data showed on Wednesday (Feb 28).

When excluding volatile items, the annual rise was 4.1 per cent, down from December’s 4.2 per cent and still well above the RBA’s 2 to 3 per cent target band.

The result will feed into the RBA’s deliberations at its Mar 18 to 19 meeting, with borrowing costs currently at a 12-year high of 4.35 per cent. Earlier this month, the rate-setting board considered hiking further as it found that aggregate demand remained above the economy’s supply potential, raising the risk of inflation not returning to target within a reasonable timeframe.

Policymakers instead decided to keep rates on hold amid signs of a broader economic slowdown that’s moderating price pressures.

Economists predict that the RBA will embark on an easing cycle as early as August.

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The result “remains the lowest annual inflation since November 2021”, said Michelle Marquardt, ABS head of prices statistics.

Bloomberg economist James McIntyre expects lingering upward pressure from housing rents, insurance and household utility bills could keep inflation “on the heated side”.

“The data will feature heavily in the RBA’s deliberations at its March meeting, along with upcoming fourth-quarter GDP numbers,” due next week, McIntyre said. “We expect the central bank to stay on hold and keep its tightening bias to ensure inflation expectations remain contained.”

The RBA’s own forecasts show inflation will only fall back within target in December 2025. BLOOMBERG