Underlying inflation has fallen to 2.9 per cent on an annual basis, paving the way for a Reserve Bank interest rate cut in May.

The trimmed mean, the RBA’s preferred inflation measure, grew by 0.7 per cent in the March quarter, slightly higher than forecast, pushing the annual figure below three per cent for the first time since December 2021.

Also known as underlying inflation, the trimmed mean excludes or down-weights items with irregular price changes for a more accurate picture of price growth.

Headline inflation grew 0.9 per cent in the March quarter to reach 2.4 per cent on an annual basis for a second straight quarter, within the RBA’s two to three per cent target range for the third quarter in a row.

The central bank had not forecast the trimmed mean to reach 2.8 per cent until the June quarter and has flagged that its May meeting would be an “opportune time” to revisit its monetary policy setting.

Economists at CBA, ANZ and Westpac expect a 25 basis point rate cut in May, which would bring the cash interest rate down to 3.85 per cent.

“The market has a very firm view that there are more interest rate cuts on the way,” said Treasurer Jim Chalmers on the campaign trail, in response to the inflation change.

“And I don’t see anything in these numbers that would substantially alter their expectations.

“Getting underlying inflation in the target band is a really big deal.”

-AAP