Australia’s annual inflation rate eased in May, although underlying price pressures continued to strengthen, according to the latest figures from the Australian Bureau of Statistics (ABS).
The Consumer Price Index (CPI) rose 4.0 per cent in the 12 months to May 2026, easing from the 4.2 per cent rise in the 12 months to April.
Housing remained the largest contributor to annual inflation, rising 6.5 per cent over the year. Food and non-alcoholic beverages increased 3.3 per cent, while transport also rose 3.3 per cent.
Despite the moderation in headline inflation, the ABS reported a rise in trimmed mean inflation, a closely watched measure of underlying price pressures.
“Trimmed mean annual inflation was 3.6 per cent in the 12 months to May 2026, up from 3.4 per cent in the 12 months to April 2026,” ABS head of prices statistics Rachael McCririck.
Higher housing costs continued to weigh on household budgets, with annual housing inflation reaching 6.5 per cent in the year to May. The increase reflected rising costs for electricity, new dwellings and rents.
“Electricity costs are 21.1 per cent higher than 12 months ago as Commonwealth and State government rebates that reduced electricity costs for households are no longer in place,” McCririck said.
Food and non-alcoholic beverages inflation accelerated to 3.3 per cent from 2.8 per cent in April, driven by higher prices for meals out and takeaway, which increased 4.0 per cent over the year.
Meanwhile, the ABS reported that transport inflation eased significantly compared with the previous month, reflecting lower fuel prices.
“Price growth for transport eased from what we saw in April, rising 3.3 per cent in annual terms, down from a 6.6 per cent rise in the 12 months to April 2026.
“On a monthly basis, automotive fuel prices fell 11.9 per cent in May, after falling by 7.0 per cent in April,” McCrick said. “These monthly falls include the impacts of the halving of the fuel excise on 1 April and lower world oil prices in recent weeks.”
Commenting on the data, APAC macro strategist at BNY, Wee Khoon Chong, said this data is “unlikely to shift the RBA from its current wait-and-see stance in the near term”, noting that trimmed mean inflation – the RBA’s preferred core measure – accelerated “more than expected”.
“…the firmer core inflation reading reinforces our view that further policy tightening remains possible before year-end,” Chong said.
“Markets appear too complacent in assuming the current tightening cycle has peaked. Market reaction was limited, with AUD and front-end Australian rates little changed, as investors look ahead to tomorrow’s employment report for a clearer signal on the labour market and policy outlook.”
Russel Chesler, VanEck’s head of investments and capital markets, commented that inflation is “no longer just sticky, it is starting to look stubborn” also citing trimmed mean moving away from the RBA’s long-coveted target band of 2-3 per cent.
“The concern now is not just what is pushing prices up today, but whether those pressures are becoming embedded across the economy,” Chesler said.
“The RBA now faces an increasingly uncomfortable trade-off. We do not expect today’s rise in trimmed mean inflation to be enough to force another hike in August 2026, but the case for easing has become harder to make. GDP growth is weakening, unemployment has risen to 4.5 per cent, households are running down savings buffers, and spending is already outpacing disposable income.”
Chesler further noted the “warning lights are flashing across the consumer economy” as national auction clearance rates and consumer sentiment approach fresh lows.
“This is the stagflation risk. Inflation is proving difficult to bring down at the same time the economy is losing momentum.
“That may not mean recession, but it does mean investors should be careful about assuming the next phase will be easy. We think the terminal rate for this cycle is either the current 4.35 per cent, or 4.6 per cent if the RBA is forced to move once more later this year,” he added.
More to come…
