Australia: Inflation nears target floor in May
Latest reading: Inflation dropped to 2.1% in May after having stood at 2.4% for a third consecutive month in April. The reading was the joint-lowest since March 2021, surprised markets on the downside and neared the lower-bound of the 2.0–3.0% target band of the Reserve Bank of Australia (RBA). Looking at the details of the release, food and housing costs rose at a softer pace in May, outweighing a weaker decline in transport prices.
As a result, the trend pointed down, with annual average inflation inching down to a near four-year low of 2.6% in May from 2.7% in April. Meanwhile, the annual rise in the trimmed mean—a closely watched measure of core inflation by the RBA—dipped to 2.4% in May (April: 2.8%), remaining within the Central Bank’s target band for the sixth consecutive month.
Lastly, consumer prices were flat month on month in May, contrasting with April’s 0.24% increase.
Outlook: Our panel expects inflation to ease further in June, undershooting the RBA’s target band on lower oil prices, a looser labor market and high interest rates. In H2, price pressures should reenter the target range and trend up as domestic demand picks up and the base effect turns less favorable. For 2025 as a whole, our Consensus is for inflation to average a five-year low, hovering around the pre-Covid decade average.