Finance 365

HEADLINE INFLATION FALLS BUT DEEPER PRESSURES ARE BUILDING

First, the good news: the latest inflation figures have probably reduced the chances of another interest rate hike in June.

According to the Australian Bureau of Statistics, annual inflation slowed from 4.6% in March to 4.2% in April. That was broadly in line with market expectations and will likely, at least, provide some breathing room for borrowers after the February, March and May rate hikes already delivered this year.

However, the fall in headline inflation was heavily influenced by lower petrol prices after the federal government temporarily halved the fuel excise. As a result, the headline figure may look healthier than the underlying reality.

This explains why the Reserve Bank of Australia (RBA) will probably be more concerned about the trimmed mean inflation figure, which actually increased from 3.3% to 3.4% during the month.

That’s significant because trimmed mean inflation strips out volatile items like fuel and gives a better indication of whether higher costs are spreading through the broader economy. And right now, they are.

Higher energy, freight and construction costs are increasingly flowing into other goods and services, suggesting inflation pressures are becoming more embedded rather than fading away.

PRICE GROWTH SLOWS AS RATE PRESSURE BUILDS

Australia’s housing market is losing momentum, according to Cotality’s latest data.

National home values rose just 0.3% in April, the slowest monthly growth since January 2025, with Sydney and Melbourne dragging the result lower after both fell 0.6%.

Those declines are now adding up. Sydney values sit 1.0% below their November peak, while Melbourne is 1.9% down.

Elsewhere, growth is still positive but clearly slowing. Brisbane, Adelaide and Darwin all recorded monthly gains above 1%, while Perth rose 2.1%, although even there the pace is easing.

Cotality research director Tim Lawless said affordability and borrowing constraints are now biting harder.

Sales activity reflects that shift, with volumes down 5.4% year on year and auction clearance rates holding below 55%, pointing to weaker competition.

At the same time, growth is becoming more targeted with lower-priced segments outperforming in every capital, as buyers concentrate on more accessible parts of the market.

“The largest difference between upper and lower quartile value growth is in Sydney, where lower-tier house values are up 2.9% year-to-date compared with a 3.3% fall across the most expensive quarter of the market,” Mr Lawless said.


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RENTAL SUPPLY CONTINUES TO SHRINK

Australia’s rental market is showing no signs of easing.

The national vacancy rate fell to just 1.0% in March, according to SQM Research, as available rental stock continues to be absorbed at a rapid pace.

There are now only 31,732 rental properties across the country, down sharply from the previous month, highlighting just how tight conditions have become.

That imbalance is keeping upward pressure on rents, which have risen 5.9% over the past year.

SQM managing director Louis Christopher said the underlying issue remains a lack of supply.

“Without a significant increase in new housing supply and/or a stabilisation of population growth rates, it is likely that rental pressures will remain elevated throughout 2026,” he said.

He also warned the impact would not be contained to the rental market alone.

“These accelerated rates of rental increases will no doubt feed through to the CPI at some point this year.”



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WHY SOME STATES ARE OUTPERFORMING

Ever wondered why property prices have surged in some states more than others?
According to Cotality, it largely comes down to supply and demand.

Since 2020, Western Australia and Queensland have seen home values jump 119.6% and 100.2%, respectively, as housing completions have lagged well behind population growth (see image).

Queensland’s population surge has been particularly strong, accounting for more than 25% of the national increase.

Victoria, meanwhile, has added a disproportionate share of new housing, helping to keep supply closer to demand and limiting growth to 17.9%.

South Australia is more of an outlier. Supply has been relatively balanced, yet home values still rose a strong 94.2%.