AUSTRALIAN inflation was steady for a third straight month in February, supporting the Reserve Bank of Australia’s (RBA) decision to keep interest rates unchanged at a 12-year high last week.

The consumer price indicator advanced 3.4 per cent from a year earlier, slightly less than economists’ estimates of 3.5 per cent and matching January and December’s readings, Australian Bureau of Statistics (ABS) data showed on Wednesday (Mar 27).

When excluding volatile items, the annual rise eased to 3.9 per cent from January’s 4.1 per cent, still well above the RBA’s 2 to 3 per cent target band.

The Australian dollar fell as far as 65.21 US cents and the policy-sensitive three-year government bond yield also declined, while stocks extended gains.

The result follows the RBA’s Mar 19 rate decision when it left borrowing costs at 4.35 per cent and dropped a tightening bias. Governor Michele Bullock reckons that aggregate demand remains above the economy’s supply potential, though she has signalled increased confidence recently that monetary policy is working to bring inflation back to target by 2025, as forecast.

While policymakers will review Wednesday’s figures, the key inflation data will be first-quarter CPI on Apr 24, which will feed into the RBA’s economic forecast ahead of the next board meeting on May 6 to 7.

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Economists predict the RBA will embark on an easing cycle in the third quarter and money markets maintained pricing for a rate cut as early as August.

“Rents increased by 7.6 per cent for the year, up from 7.4 per cent in January, reflecting a tight rental market and low vacancy rates across the country,” the ABS said. “New dwelling prices rose 4.9 per cent over the year with builders passing through higher costs for labour and materials. Annual new dwelling price increases have been around the 5 per cent mark for the past six months.”

The RBA’s current forecasts show the CPI will only fall back within target in December 2025.

Earlier this week, Treasurer Jim Chalmers said that inflation is moderating despite some volatility.

“It is already clear the direction of travel in inflation is welcome and encouraging,” Chalmers said.

The CPI result showed:

• Housing climbed 4.6 per cent and insurance and financial services 8.4 per cent.

• Inflation in food and non-alcoholic beverages slowed to the weakest annual pace since January 2022. BLOOMBERG