Australia consumer prices slip in May, but core inflation tops forecasts

[SYDNEY] Australian consumer prices fell in May as fuel costs and holiday travel eased, data showed on Wednesday (Jun 24), but core inflation surprised on the high side, suggesting a further rise in interest rates cannot be ruled out.

The mixed report failed to move the dial on the policy outlook, leaving the Australian dollar flat at US$0.6917, while three-year government bond yields slipped two basis points to 4.399 per cent.

Markets continued to price a 22 per cent chance that the Reserve Bank of Australia (RBA) will hike interest rates for a fourth time this year in August. A tightening of 15 basis points is expected for the rest of the year, less than one full quarter-point rate hike.

Data from the Australian Bureau of Statistics showed its monthly consumer price index fell 0.7 per cent in May from the previous month, as prices for petrol, clothing and holiday travel dropped. The annual pace slowed to 4 per cent from 4.2 per cent, and was below economist forecasts for 4.3 per cent.

The trimmed mean measure of core inflation, however, increased by 0.4 per cent in the month, above forecasts for 0.3 per cent, pushing the annual pace up to 3.6 per cent.

The RBA has raised interest rates three times this year to 4.35 per cent to head off a war-driven energy shock, fully reversing the amount of policy easing implemented in 2025. Its latest forecasts in May had expected headline inflation to top 4.8 per cent by the second quarter and the trimmed mean measure to climb to 3.8 per cent.

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A possible resolution of the Iran war has since driven oil prices sharply lower in a welcome development for global central banks, but the RBA has said that it is still concerned about secondary effects from higher energy costs onto other prices. REUTERS