Home > Latest News > Inflation Cools To 5.6%, RBA May Pause Interest Rate

Inflation Cools To 5.6%, RBA May Pause Interest Rate

Inflation is at its smallest margin in over a year, rising 5.6 per cent in the year to May, compared to 6.8 per cent in March.

The markets expected a cooling off, albeit only to 6.1 per cent. Inflation hit a current peak of 8.4 per cent in December 2022, and has steadily dropped off since.

Food and non-alcoholic beverages remains elevated, at 7.9 per cent, with price rises seen across all food categories.

New dwelling prices rose 8.3 per cent in the twelve months to May, continuing to ease compared to the record high increase of 21.7 per cent in the twelve months to July 2022.

This trend could well see the RBA hold interest rates when it meets on Tuesday.

Jim Chalmers said this morning, “we expect inflation to stay higher than we’d like for longer than we like. But it is moderating. It is tracking in the right direction.

“It’s due to fall from 7 per cent we saw in the March quarter nationally, to 3.75 per cent in 2023-24 and then into the RBA’s target band the year after.”

As ANZ senior economist, Adelaide Timbrell, points out, while ‘headline inflation’ decreased month-on-month, core inflation, which excludes volatile items and holiday travel “showed almost no moderation”, sitting at 6.4 per cent year-on-year in May, compared to 6.5 per cent in April.

“We still expect the RBA to raise the cash rate in July and August, but given that the last two decisions were described by the RBA Board as ‘finely balanced’, there is a chance the monthly CPI data could shift the RBA to a pause.

“That would shift the timing of our forecast peak cash rate of 4.6 per cent.”

 



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