Monthly inflation in Australia has risen to its highest level in 2024, providing the latest indication that the Reserve Bank will not cut rates anytime soon and may raise them again.
Consumer prices rose 4% last month from a year earlier, the Australian Bureau of Statistics said on Wednesday. That compares with the 3.6% recorded for April, and the 3.8% economists expect for May.
The rise in inflation in May was partly driven by car fuel prices, which rose 9.3% from a year earlier, while falling 5.1% over the month itself.
Electricity prices also rose 6.5% from a year ago, an acceleration from 4.2% in April. Without the federal and state rebates, energy prices would have been 14.5% higher.
Food showed a mixed price picture. Overall prices rose 3.3% from May 2023, a slowdown from the 3.8% pace in April. However, fruit and vegetable prices rose 4.4% compared to May 2023, continuing the recent recovery after prices fell 1.2% in March.
Housing costs were 5.2% higher than in May 2023, with rents rising 7.4%, reflecting low vacancy rates in many cities.
Of particular importance will be the acceleration of the truncated average inflation measure, which the RBA looks at more closely than the “headline” CPI figure. That rose from 4.1% in April and 4% in March to 4.4%.
The monthly inflation figures are less complete than the quarterly figures, which only appear on July 31. The RBA expects the quarterly inflation rate to accelerate from 3.6% in the March quarter to 3.8% in the April-June period.
The monthly consumer price index peaked at 8.4% in December 2022, the highest level in three decades. This was due to the combination of post-COVID government stimulus and higher global energy prices following the Russian invasion of Ukraine.
The RBA has said it will not hesitate to raise its key interest rate – for the fourteenth time this cycle – if it loses confidence that inflation can return to the 2%-3% target by the end of next year.
The federal budget, released earlier this month, predicts that price increases could slow to 3% or less by the end of 2024. She is counting on energy cuts and other measures to ‘mechanically’ lower the CPI, even if the third phase of cuts yields more money. than $20 billion into the economy this coming fiscal year.
The Australian dollar rose about 0.2 cent to almost 66.7 US cents in the wake of the inflation data, as investors shifted their expectations on interest rates. Shares also fell about 0.3 percentage points before paring losses for the day of about 0.75%.
The treasurer, Jim Chalmers, said inflation was “higher than we would like”, and much lower than 6.1% when Labor took office in May 2022.
“We have seen around the world that inflation can zigzag down, that inflation does not always moderate in a straight line and that the last mile can be a bit tougher,” Chalmers said.
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His shadow colleague Angus Taylor said the inflation outcome was “shocking but not surprising”.
“This is what happens when you have a big-spending Labor government that is completely out of touch with economic reality,” Taylor said.
“We have now had four months in a row of accelerating core inflation. This will undoubtedly be a concern for the independent Reserve Bank.”
However, Steve Mickenbecker, a director at Canstar, said the monthly inflation figure was “staggering”, confirming that inflation is not on the downward trajectory targeted by the RBA.
The RBA will “certainly raise rates” when its board meets on August 5-6, as “the risk of baked-in inflation expectations is too high,” Mickenbecker said.
“It is worrying news for borrowers with an increase of 0.25 [percentage point] Add $100 to the monthly payment of a $600,000 loan over 30 years,” he said. “Even without a rate increase, a three-month extension before a rate cut adds $288 in additional payments to the same loan.”
David Bassanese, chief economist at Betashares, said the monthly CPI was a “shocker” that put “huge pressure on the Reserve Bank to raise rates in August”.
“For the RBA, the concern remains that the longer inflation remains high, the greater the risk becomes that it becomes embedded in inflation expectations and ongoing wage and price-setting behavior – especially given that, despite weak growth, the economy , is still functioning at a high level. capacity,” Bassanese said.
Ahead of today’s figures, all four commercial banks – except ANZ – predicted the RBA would cut cash rates in November. ANZ broke ranks earlier this month, predicting the first rate cut wouldn’t happen until February 2025.