While still within the RBA’s 2-3% target range, the headline figures are on the lower side. The central bank will be keen to assess whether price pressures continue to ease in the coming months, boosting hopes of another rate cut in July.
The monthly CPI, excluding volatile items and holiday travel, rose 2.7% through May, down from a 2.8% increase in April.
Trimmed mean inflation also came in lower at 2.4% from 2.8% in April.
The Australian Bureau of Statistics reported that annual inflation for food and non-alcoholic beverages eased to 2.9% in May, a slight drop from 3.1% in January.
Rental prices saw their slowest annual growth since December 2022 coming in at 4.5%, following a 5% rise through April.
It's worth noting, however, that the monthly release is not as comprehensive as the quarterly release.
Will global uncertainty dampen consumer spending?
Inflation easing back more than expected can signal consumer hesitancy amid growing unrest in the Middle East and instability in tariff policies.
In a recent press conference, Treasurer Jim Chalmers highlighted the significant economic uncertainty caused by the ongoing Israel-Iran conflict.
“We are seeing a global economy which is defined by unpredictability and volatility and uncertainty, and these will be the primary influences on the government and on our country and its economy as we make important decisions about how we manage the economy in uncertain times,"he said.
With slowing inflation - despite a rise in oil prices, and increasing tensions in the Middle East - the RBA is expected to continue lowering interest rates.
The ABS is set to release its monthly retail sales data on 2 July, a few days ahead of the Monetary Policy Board meeting to assess how consumers are responding.
When can we expect the next rate cut?
While Dr Chalmers warned that the monthly inflation figure is “notoriously volatile and hard to predict,” experts said the strain caused by tensions in the Middle East may potentially push the RBA to keep cutting the cash rate even if inflation begins to pick up again.
The current cash rate is 3.85%, following a recent rate cut in May. The next decision on rates will be made on Tuesday, 8 July.
As of 24 June, the RBA ASX rate tracker shows a 89% likelihood of a 0.25% rate cut in July, which would bring the cash rate down to 3.60%.
Image by Kampus Production on Pexels
Ready, Set, Buy!
Learn everything you need to know about buying property – from choosing the right property and home loan, to the purchasing process, tips to save money and more!
With bonus Q&A sheet and Crossword!
Harry O'Sullivan
Harrison Astbury
