Inflation ‘refusing to ease its grip’: Financial resilience ‘crucial’ for SMBs

The monthly consumer price index (CPI) has been released by the Australian Bureau of Statistics (ABS), as inflation remains at 2.5 per cent.

The CPI released by the ABS just yesterday (26 February 2024) has given small businesses across Australia yet another reminder that financial resilience is still a must-have. The findings showed that the monthly CPI indicator rose 2.5 per cent in the 12 months to January 2025.

“Annual CPI inflation at 2.5 per cent in January was the same as it was in December 2024,” said Michelle Marquardt, ABS head of prices statistics.

Despite this stagnation, underlying inflation rose 0.1 percentage point to 2.8 per cent overall.

Ben Thompson, chief executive of Employment Hero, commented on the figures: “This month’s unchanged consumer price index tells us inflation is still refusing to ease its grip, which is especially concerning looking at our latest employment data – wages are stalling and hours are getting axed.”

“SMEs are feeling the post-holiday squeeze and are likely course correcting through flexible, casual hiring to weather mounting cost pressures. We may see this trend continue given the uncertainty of the market – despite the rate cut offering some relief.”

With the recent news of the Reserve Bank of Australia deciding to cut the cash rate by 25 basis points, from 4.35 per cent to 4.1 per cent, many Australians were chuffed with the much-needed economic relief.

However, Kyle Willersdorf, GoCardless account director, clarified that despite this good fortune, the economy is far from out of the woods – doubting the chances of another rate cut occurring anytime soon.

“Even with this month’s interest rate cut, [yesterday’s] consumer price index reading is a reminder that there’s still a long way to go before we’re really in the clear. This staid CPI reading pushes the odds of a consecutive rate cut down considerably, which is a bit of a blow for consumers – but an even bigger challenge for businesses already struggling to stay afloat,” Willersdorf said.

“If you’re running an SMB, financial resilience is now vital. The economy is still shaky, spending will fluctuate, and another interest rate cut is not guaranteed after today’s results. Businesses need to take control where they can – improving cash flow and cutting unnecessary costs.”

Josh Gilbert, market analyst at eToro, agreed with Willersdorf’s assessment regarding a second consecutive rate cut now being unlikely.

“This report doesn’t necessarily provide a smoking gun for the RBA to continue cutting rates, but it does offer reassurance that inflation is moving in the right direction and supports the cut we saw earlier this month,” Gilbert said.

“The biggest concern for policymakers and investors alike remains the view that disinflation may stall, hence the RBA’s hawkish stance despite cutting rates. We’ve seen this happen across the pond, where price pressures have persisted in the US and the Fed is easing off when it comes to cutting rates.”

“For now, another cut isn’t likely in April, particularly with the ongoing strength in the labour market. The board will be laser-focused on Q1 data released after its decision in April. Should that bring further disinflation, we can look to May as the next time Michele Bullock and her team may cut rates.”