Login
ISCOVER
New data shows headline inflation for May was unchanged, but underlying inflation inched up, cementing calls for future rate reductions.
The Monthly Consumer Price Index (CPI) indicator rose 2.4 per cent in the year to April, according to new data from the Australian Bureau of Statistics (ABS), unchanged from March figures.
Annual trimmed mean inflation was 2.8 per cent in April, inching up from 2.7 per cent in March but still within the RBA’s target band of 2–3 per cent.
The largest contributors to the annual movement were food and non-alcoholic beverages (up 3.1 per cent), housing (up 2.2 per cent), and recreation and culture (up 3.6 per cent).
When excluding volatile items and holiday travel, the measure rose 2.8 per cent in the 12 months to April (following a 2.6 per cent rise in the year to March).
New dwelling prices, which capture new builds and major renovations, rose 1.2 per cent over the 12 months to April. While price growth has strengthened slightly compared to the 12 months to March (up 1.0 per cent), it was the second-lowest annual increase since April 2021.
However, dwelling prices rose 0.5 per cent over the month – the first monthly increase since December 2024.
Speaking after the inflation data was released, Treasurer Jim Chalmers described the result as “another demonstration of the substantial and sustained progress we have made on inflation”.
“Monthly headline inflation has been in the band for nine consecutive months and underlying inflation has been in the band for five consecutive months,” he said.
“We know that these monthly numbers are volatile and can bounce around but the direction of travel on inflation is clear. Another month of CPI in the band is a welcome and encouraging sign that inflation is moderating sustainably.
“This is the longest period that both headline and underlying inflation have been in the band since the monthly inflation series began in 2018.”
The latest monthly inflation figures follow encouraging inflation data for the March quarter, which saw the annual trimmed mean of inflation fall within the central bank’s target range for the first time in more than three years.
In a statement as it announced its cash rate cut decision for May-June, the RBA said: “The board judged that the risks to inflation have become more balanced. Inflation is in the target band and upside risks appear to have diminished as international developments are expected to weigh on the economy.
“With inflation expected to remain around target, the board therefore judged that an easing in monetary policy at this meeting was appropriate.”
The RBA’s Monetary Policy Board said that “maintaining low and stable inflation is the priority”.
When’s the next cut coming?
Commenting on the new CPI data, Australia and New Zealand Banking Group (ANZ) senior economist Adelaide Timbrell and economist Aaron Luk said the CPI indicator showed “Australia’s disinflation process has somewhat stalled” since the end of 2024.
“All three measures, including the headline monthly CPI indicator, monthly CPI excluding volatile items and holiday travel, as well as annual trimmed mean, have all been shuffling sideways for the past few months,” they said.
Westpac senior economist Jason Smirk said: “Taken at face value, the April Monthly CPI would suggest upside risk to our June quarter estimates for the CPI and the trimmed mean.”
Westpac’s estimate for the June quarter trimmed mean is 2.7 per cent, easing to 2.6 per cent in the September quarter.
AMP economist My Bui described the headline CPI indicator as “encouraging”, marking the ninth consecutive month of the measure staying within the RBA’s 2–3 per cent target band.
Bui flagged housing as one of the major drivers of elevated inflation but said “momentum has been very encouraging over the past few months”.
She said that the monthly data did not change AMP’s outlook for further rate cuts and warned of “more downside risks” for the economy with the negative growth impact from a global trade war.
“Our base case is for the RBA to cut three more times in this cycle, with 25bps cuts in August, November and February next year,” Bui said.
Ivan Colhoun, CreditorWatch chief economist, said that based on the latest inflation figures, the interest rate outlook still “tilts towards easing”.
“Despite the inflation surprise, the RBA’s forecasts were based on expectations of two more rate cuts, so further easing is still likely – though back-to-back cuts are now less probable due to inflation and global trade uncertainty,” Colhoun said.
He said that cost pressures remain, adding: “While price increases have slowed, they haven’t reversed. The cost of living and doing business remains elevated.”
Colhoun said that “underlying inflation may be levelling off around 2.75 per cent”.
“The RBA is expecting it to continue to moderate to 2.6 per cent and then remain there as slower growth, slightly higher unemployment and some lower imported goods prices help offset continuing high services prices,” he said.
“That may seem a challenge for further near-term easing, but the recent forecasts were conditioned on a further two interest rate cuts, so more easing is still likely. Either way, the cost of living and of doing business remains high and isn’t falling, just rising at a slower rate.”
The RBA Monetary Policy Board is scheduled to next meet on 7–8 July.
[Related: May rate cut ‘near certainty’ as inflation hits RBA target]
JOIN THE DISCUSSION