Interest rate cut hopes dim as hint on Australian inflation trajectory exposed: 'In the same boat'

You know how hard it is to get the last little bit of tomato sauce out of the bottle? You shake it and shake but it just won't budge?

The same could be true of inflation. The newest data on inflation came out this week and everyone was hoping inflation would continue to fall.

The Reserve Bank of Australia (RBA) forecasts inflation to be back to normal by the end of next year and we were ahead of schedule for a little while there.

But now any optimism looks misplaced.

Inflation measures how much prices have changed. Prices rose faster in March than they did in February. The whole decline of inflation seems to have stopped.

Two of the biggest categories driving it up? Rent and petrol. They are both getting more expensive at a rapid clip.

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Now, if inflation won’t go back down to the RBA’s target range of 2 to 3 per cent, then the RBA won’t be sprinkling interest rate cuts around any time soon.

That means still more months of crushing interest payments that leave little left over for spending in local businesses, and an economy that slowly gets weaker.

Not long ago futures markets were pricing in interest rate cuts by the end of the year but they’ve reversed that prediction.

There’s even a tiny, tiny chance of a rate hike in the next few months. Anyone with a mortgage would hate that.

The longer inflation stays elevated, and the longer interest rates stay at contractionary levels, the higher unemployment will rise and the more damage will be done to the economy.

America's struggle with inflation a canary in the coal mine

Some jobs, the last 10 per cent of the outcome seems to require 90 per cent of the work.

Beating inflation might be like that. Getting it down from 8 per cent to 4 per cent was quick.

But the next bit could well be a slog. Certainly, that’s how it looks in America, where the economy seems to be running about six months ahead of ours. Over there inflation is getting worse, not better.

We can hope that inflation capitulates soon, but the experience overseas suggests that the last little bit of inflation is very hard to defeat.

Everyone is expecting another little fall in inflation.

But after the American CPI showed a stubborn unwillingness to dip back under 3 per cent there's a risk that we are in the same boat.

And if that happens then the chance of rate cuts this year starts to dim dramatically.

Could it be the last little bit of inflation is the hardest to kill?