Aussies with a mortgage have been dealt a brutal blow amid warnings the Reserve Bank will likely increase interest rates in light of recent inflation figures.
Australian Bureau of Statistics data showed on Wednesday the consumer price index fell to four per cent in the 12 months to May – down from 4.2 per cent in April.
While headline inflation dipped, the trimmed mean, the measure preferred by the RBA, rose from 3.4 per cent in April to 3.6 per cent in May.
The target band sits between two and three per cent.
KPMG chief economist Dr Brendan Wren told ABC this would likely put pressure on the RBA to raise interest rates in August.
‘Unfortunately, I think it adds to the case for a rate hike,’ he said.
‘The number that’s much more important, and that matters, is core inflation.
‘And unfortunately, what we’re seeing is core inflation rise.
Aussies with a mortgage have been dealt a brutal blow amid warnings the Reserve Bank will likely raise interest rates in light of recent inflation figures (stock image)
‘That will put the Reserve Bank on notice to increase interest rates at the next meeting in August, which is pretty much what we had anticipated ourselves.’
The biggest contributor to annual inflation in the year to May was housing.
Food and non-alcoholic beverages and transport followed next.
‘Electricity costs are 21.1 per cent higher than 12 months ago as Commonwealth and State government rebates that reduced electricity costs for households are no longer in place,’ ABS head of prices statistics said.
RSM economist Devika Shivadekar was more optimistic, sticking by forecasts the RBA will hold rates.
‘Looking beneath the headline, the composition of inflation remains skewed towards persistent, domestically driven components, which is keeping underlying (trimmed mean) inflation elevated,’ she wrote.
‘The direction of travel on inflation is encouraging, but a 4% annual pace is still too high to justify an early pivot to rate cuts, especially with core pressures likely lingering above target.
‘The next CPI release, due on 29 July 2026, will be pivotal for the August meeting, as it will include the full June quarter data alongside the monthly update giving the RBA its most comprehensive read on inflation momentum.’
Treasurer Jim Chalmers said the headline inflation figures were better than expected, but admitted the government faced an ‘inflation challenge’
Treasurer Jim Chalmers said the headline inflation figures were better than expected, but admitted the government faced an ‘inflation challenge’.
‘The war in the Middle East is making inflation higher than it would otherwise be,’ he said.
‘You can see that the initial impact on inflation came from the conflict when it came to fuel, but we see a broadening bit in other areas including most especially dwelling construction cost.’
Chalmers said it was ‘worth remembering that inflation is much lower than when we came to office’.
‘Our economy is not immune from all these global uncertainties and volatilities but we are well-placed and we are well prepared to confront it,’ he said.
‘This is a very welcome set of numbers which shows that inflation fell once again for the second month in a row.’
more to come
