Interest rate hikes remain on cards as underlying inflation climbs, economists warn
Summary
Australia's inflation rate fell slightly in May to 4%, helped by a big drop in fuel prices. However, underlying inflation, which excludes temporary price changes, rose, suggesting that the Reserve Bank of Australia (RBA) may still raise interest rates to control inflation.Key Facts
- Annual inflation fell from 4.2% in April to 4% in May, due mainly to a nearly 12% drop in fuel prices.
- Underlying inflation, measured by the RBA’s preferred trimmed mean, rose from 3.4% to 3.6% in May.
- Home building costs increased by 0.9% in May, the biggest monthly rise since late 2022, lifting yearly growth to 5.6%.
- Food and drink prices accelerated to 3.3% annually, including a 4% rise in restaurant and takeaway meals.
- Financial markets see about a 32% chance of an interest rate hike in August and a 56% chance by the end of the year.
- Some experts think inflation is peaking lower than earlier expected and expect a less aggressive RBA approach.
- Other economists believe the RBA will raise rates again in August to prevent inflation expectations from rising.
- Rising costs like higher fertilizer prices may push food prices higher and influence the RBA’s decisions.
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