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Highlights
May CPI shows broad cooling in food, energy, and housing sectors
Core inflation slides below RBA's preferred range, lifting easing expectations
Businesses eye relief amid signs of easing cost pressures
Australia’s economic landscape saw a significant shift as the May Consumer Price Index (CPI) showed further signs of cooling, placing added focus on the Reserve Bank of Australia’s (RBA) upcoming interest rate decision. The latest reading from the Australian Bureau of Statistics revealed a notable moderation in annual inflation, touching levels not seen since late 2024.
This inflation data arrives as major stocks across the ASX 200 index continue to navigate uncertain conditions shaped by interest rate speculation and broader macroeconomic trends.
Food and Housing Costs Ease from Previous Highs
A deeper look into the CPI composition shows easing pressures in both food and housing categories. While food prices remain elevated, growth moderated compared to earlier months. Fresh produce, in particular, experienced a sharp deceleration in price growth, contributing to overall disinflation within the broader food segment.
Housing costs also trended lower, with rental prices stabilising. This shift reflects a more balanced dynamic in the residential rental market, aided by steady vacancy rates in major metropolitan areas.
Electricity charges dropped further, buoyed by state-backed rebates, helping to soften utility costs for households and contributing significantly to the overall CPI decline.
Trimmed Mean CPI Falls Within RBA’s Comfort Zone
The RBA’s preferred measure of underlying inflation — the trimmed mean — also showed a marked decrease, now falling within the central bank’s target band. This indicator has long served as a signal of sustained inflationary pressures, and the latest drop could pave the way for a shift in monetary policy settings.
With core inflation settling below key thresholds, the RBA is now in a stronger position to weigh policy accommodation. The latest figures signal a return to more stable price conditions, and attention is increasingly turning to how the central bank may respond to bolster growth momentum.
Small Businesses Hopeful but Challenges Persist
Easing inflation brings cautious optimism to the small business sector, which has faced persistent headwinds linked to high input costs and labour expenses. The latest CPI print is being viewed by many as a welcome sign that cost pressures may begin to abate in coming quarters.
However, despite the relief on inflation, business owners continue to flag concerns around wage growth outpacing productivity, as well as compliance and administrative burdens. These issues remain front-of-mind even as broader macroeconomic data turns more favourable.
Market Outlook Eyes July for Policy Clarity
With the RBA set to meet in July, the May CPI figures are shaping expectations for a potential change in direction. Market observers and financial strategists are closely watching the implications of these readings, especially as broader consumption and growth data continue to reflect a subdued economic environment.
