A market defying interest rate increase came through today, despite inflation pulling back in the March quarter. Although inflation is coming back, it is likely that it isn’t moving quick enough for the Reserve Bank of Australia (RBA). It is, however, likely to be the last increase for a while.
Last week, inflation came in at seven per cent. Although still well above the RBA’s target of 2-3 per cent, it is moving in the right direction. Inflation appears to have peaked in December and it is likely that the trajectory is now downwards.
There are still some items that are keeping inflation high. The cost of building a new home is still up 12.7 per cent over the year and domestic travel is up 25 per cent. More recently, medical costs have risen over the quarter, a once off that appears to be driven by the Medicare Safety Net January reset, as well as specialists reviewing their fees at the start of the year.
More positively, international travel costs have come back and many retailers, particularly those selling home goods, are discounting to get rid of excess stock. This cycle there are many items that higher interest rates can’t control but for those driven by consumer demand, it is certainly working as expected. We are buying less furniture, clothes and our international travel plans have been delayed. | 
