Inflation Eases Further
Inflation eased further last month, with consumer prices rising 2.1 per cent over the year to May, down from 2.4 per cent the previous month. According to the Australian Bureau of Statistics, the monthly Consumer Price Index (CPI) was at its lowest level since October 2024.
Underlying Inflation
The annual trimmed mean, a measure of underlying inflation, was down to 2.4 per cent in May, from 2.8 per cent in April, which the ABS said was its lowest rate since November 2021. This decrease in underlying inflation suggests that the economy is experiencing a slowdown in price growth.
Interest Rate Cut
Ahead of the data release, market pricing put the chance of an interest rate cut in July around 81 per cent, according to LSEG. Following the weaker-than-expected figures, pricing rose to an 88 per cent chance. The Reserve Bank next meets to consider interest rates in just under a fortnight’s time. Economist Callam Pickering from job site Indeed said, "Underlying inflation sits comfortably within the RBA’s target, allowing the RBA to cut rates again with confidence that inflation is under control."
Future Rate Cuts
Mr Pickering has forecast a 0.25 percentage point cut on July 8, followed by another move lower in either August or September. He also stated, "The RBA will need to cut rates at least another couple of times this year to provide sufficient support to households and businesses, while ensuring that the unemployment rate remains low and we avoid recession."
Grocery Price Rises Ease Off
While food and non-alcoholic beverages were the biggest contributor to the headline CPI, they rose 2.9 per cent over the year — down from 3.1 per cent in April. Fruit and vegetables rose 2.8 per cent in the year to May, down significantly from the 6.1 per cent increase recorded a month earlier. Looking at fruit in isolation, prices actually fell last month, down 2.7 per cent, with lower prices for mandarins, oranges, avocados, and apples.
Energy Costs
Meanwhile, electricity rebates continued to impact energy costs, with electricity prices down 5.9 per cent over the 12 months to May — that was a smaller fall than the 6.5 per cent in April. ABS head of prices statistics Michelle Marquardt noted, "In Victoria, the impact of these rebates was lower in May than April due to the timing of payments." Without the Commonwealth and state government rebates, electricity prices would have risen 2 per cent in the 12 months to May.
Housing Market
Annual housing inflation eased back to 2 per cent in May, down from 2.2 per cent in April. Rents rose 4.5 per cent over the year, down from 5 per cent a month earlier. This is the lowest annual growth in rental prices since December 2022, consistent with smaller increases in advertised rents and stable vacancy rates across most capital cities.
Conclusion
In conclusion, the latest inflation figures suggest that the economy is experiencing a slowdown in price growth, which could lead to further interest rate cuts. The decrease in underlying inflation and the easing of grocery price rises are positive signs for the economy. However, the housing market remains a concern, with any easing in affordability for first home buyers likely to be short-lived due to expected higher house prices. As Beatshares chief economist David Bassanese noted, "All up, however, the underlying trend for inflation still appears downward, which is good news for the many millions of Australians still counting on further mortgage rate relief in coming months."
