The sticky economic factor making an interest rate drop unlikely this year

The consumer price index (CPI) rose in April to an annual rate of 3.6 percent, which was 0.1 percent higher than in March, raising doubts about an interest rate cut this year as inflation starts looking stickier than expected. This is the second consecutive month of small rises, potentially indicating that Australia is experiencing the same stalled progress in bringing inflation down that is being seen in the United States, as both nations approach their central banks’ target inflation bands.

In Australia, the target inflation band is 2 to 3 percent, with the Reserve Bank of Australia (RBA) aiming to achieve the midpoint under its new agreement with the Federal Government following a formal review. In its interest rate decision-making, the RBA does not give as much weight to the monthly inflation data because not all prices are measured like they are in the quarterly data. On a quarterly basis, inflation has continued to fall. In the March quarter, the annual rate of inflation was 3.6 percent, down from 4.1 percent in December, according to the Australian Bureau of Statistics (ABS).

CBA economist Stephen Wu noted the April data was above the bank’s forecast of 3.5 percent as well as the industrywide consensus forecast of 3.4 percent. He predicts the next leg down in inflation won’t be until the September quarter, when we will see the effects of electricity rebates and a likely smaller minimum wage increase to be announced by the Fair Work Commission next month compared to June 2023.

The most significant contributor to the April inflation rise were housing costs, which rose 4.9 percent on an annual basis. This reflects a continuing rise in weekly rents amid near-record low vacancy rates across the country, as well as significantly higher labour and materials costs which builders are passing on to the buyers of new homes, as well as renovators.

The second biggest contributor was food and non-alcoholic beverages, up 3.8 percent annually, reflecting higher prices for fruit and vegetables in April. The ABS said unfavourable weather led to a reduced supply of berries, bananas and vegetables such as broccoli. The annual rate of inflation for alcohol and tobacco rose by 6.5 percent, and transport rose by 4.2 percent due to higher fuel prices.

Robert Carnell, the Asia Pacific head of research at ING, said they no longer expect a rate cut this year after seeing the April data. Mr Carnell said an increase in trend inflation was apparent and “rate cuts this year look unlikely”. In the RBA’s latest monetary policy statement, published before the April CPI was released, it said: “Inflation is expected to be higher in the near term than previously thought due to the stronger labour market and higher petrol prices. But inflation is still expected to return to the target range in the second half of 2025 and to reach the midpoint in 2026.”

For many Australians, the 2026 Federal Budget initially felt like a direct challenge to the way wealth is created, held and transferred between generations.

The headlines were immediate: changes to capital gains tax, reforms to discretionary trusts, restrictions on negative gearing and increased scrutiny of investment structures. Unsurprisingly, affluent families, business owners and investors began asking the same question:

Is the way we hold our wealth still fit for purpose?

In recent days, the government has announced several significant amendments following industry consultation and public feedback, including exempting testamentary trusts from the proposed 30 per cent minimum tax and expanding capital gains tax concessions for small businesses.

The backdown is welcome. But it also highlights something much bigger.

This Budget has accelerated a conversation that many Australian families have been postponing for years.

The conversation is not really about tax. It is about wealth stewardship.

For decades, Australians have built wealth through businesses, property, investments and careful long-term planning. Yet many families have not revisited the legal structures surrounding those assets in years, sometimes decades.

We often see clients who have spent years building significant wealth, only to discover their legal arrangements no longer reflect their current circumstances.

Their children are now adults. They may own multiple properties.

They may have sold a business, entered a second marriage, become grandparents or accumulated digital assets that did not exist when their original estate plans were prepared.

The trust that distributes income may need to be reconsidered. The bucket company may no longer be so attractive.

The Budget has simply exposed a reality that already existed: wealth structures cannot remain static while life continues to evolve.

Importantly, trusts themselves are not the issue.

Trusts are legitimate planning tools that provide flexibility, protection and continuity. When used appropriately, they allow families to adapt to changing circumstances over time.

And neither is tax the issue, really. Getting the fundamentals right is more important for long-term, sustainable wealth than a few favourable tax treatments around the edges.

The real issue is complacency.

Too often, families create structures and assume the job is done. It isn’t.

Estate planning is no longer a document you sign once and file away in a drawer. It is an ongoing process that should evolve alongside your life.

We are also seeing a broader shift in how Australians define wealth itself. It is no longer just the family home and an investment portfolio.

Modern wealth includes businesses, digital assets, cryptocurrency, intellectual property, frequent flyer points and increasingly complex family arrangements.

At the same time, Australians are living longer than ever before, meaning wealth may need to support multiple generations simultaneously. This creates new responsibilities and new risks.

How do you help your children enter the property market without exposing family wealth to relationship breakdowns?

How do you structure wealth so that it remains a source of opportunity rather than future conflict?

These are the questions families should be asking now.

The recent debate surrounding testamentary trusts also serves as an important reminder that policy decisions can have unintended consequences for vulnerable Australians. It is encouraging that the government has listened to feedback and clarified its position.

But the lesson remains: the wealth landscape is changing.

Increasingly, governments, regulators and tax authorities are paying closer attention to how wealth is held and transferred. That means families cannot afford to adopt a “set-and-forget” approach to their structures.

The families who will be best placed for the future are not necessarily those with the greatest wealth.

They are the families with the greatest clarity. Clarity around ownership, succession and governance. And clarity around how wealth will transition from one generation to the next.

Ultimately, preserving wealth is not about avoiding change.

It is about preparing for it.

Because the greatest risk is not change itself.

It is losing the ability to respond to it.

Anthony Hunt is Co-Founder of Wealth Lawyers and former COO of Westpac Private Bank. He advises business owners, investors and affluent Australian families on wealth protection, succession planning and intergenerational wealth transfer

The sticky economic factor making an interest rate drop unlikely this year

It’s a key indicator in the RBA board’s decision making process, but it is proving difficult to move in the right direction

The Federal Budget may have softened some of its proposed tax reforms, but it has exposed a bigger issue: too many families are relying on wealth structures that no longer reflect the realities of modern life.