The Australian Bureau of Statistics (ABS) has reported headline inflation of 5.6 per cent in the 12 months to 31 May 2023, down from 6.8 per cent in April.
This represents the smallest increase to the monthly CPI index since April 2022 and was underpinned by a sharp decline in transport costs, from a 7.1 per cent increase in the year to April, to a 0.8 per cent rise in the 12 months to May.
Automotive fuel costs dropped 8 per cent, compared to a 9.5 per cent increase in the 12 months to April.
“This month’s annual increase of 5.6 per cent is the smallest increase since April last year. While prices have kept rising for most goods and services, many increases were smaller than we have seen in recent months,” Michelle Marquardt, ABS head of prices statistics, observed.
The May result fell well below market expectations, with each of the big four banks’ research houses forecasting a higher headline CPI.
NAB’s projection was most optimistic at 5.9 per cent, followed by ANZ (6 per cent), Westpac (6.1 per cent), and the Commonwealth Bank (6.2 per cent).
The May CPI print comes a week ahead of the Reserve Bank of Australia’s (RBA) next monetary policy board meeting.
The RBA lifted rates by a further 25 bps to 4.1 per cent in June, marking the 12th hike since the monetary policy tightening cycle commenced.
The cycle has delivered a cumulative 400 bps in hikes, with markets largely anticipating further hikes in the coming months, given “sticky” services inflation, resilience in the labour market, and wages pressures.
Since the board’s June meeting, national accounts data for the March quarter was released, along with the latest monthly labour market statistics.
The results were conflicting, with GDP slowing to 0.1 per cent, while the unemployment rate fell back to 3.6 per cent.
Nonetheless, several senior economists have revised their projections for the terminal cash rate.
Among the big four banks, ANZ and the Commonwealth Bank have called a terminal cash rate of 4.35 per cent while NAB and Westpac expect rates to hit 4.6 per cent over the coming months.
However, RBA has acknowledged its tightening cycle has weighed on households, reflected in a sustained decline in household spending.
According to the latest data, retail spending fell from 5.4 per cent in the 12 months to March 2023, to 4.2 per cent.