AUSTRALIA’S inflation accelerated faster than expected in May, sending the currency higher as traders boosted bets the Reserve Bank of Australia (RBA) will resume raising interest rates at its next meeting.
The monthly consumer price indicator climbed 4 per cent from a year earlier, exceeding economists’ estimate of 3.8 per cent, data from the Australian Bureau of Statistics (ABS) showed on Wednesday (Jun 26). The trimmed mean core measure, which smooths out volatile items, advanced 4.4 per cent versus 4.1 per cent a month earlier.
The Australian dollar rose 0.3 per cent after the print as traders priced a greater chance of a rate hike at the RBA’s Aug 5 to 6 meeting. Yields on policy sensitive three-year bonds also gained.
Wednesday’s results come after RBA governor Michele Bullock restated last week that the rate-setting board is not ruling out a rate hike after leaving the benchmark at a 12-year high of 4.35 per cent. She added that policymakers remain vigilant to upside risks for inflation.
In the US, Federal Reserve officials have said that while they are encouraged by an improvement in price data, they will need to see months of such progress before reducing rates. A healthy job market is providing them with some flexibility.
That’s also true in Australia, where the jobless rate is hovering around levels that are below estimated full employment. The RBA’s goal is to bring consumer prices back within its 2 to 3 per cent target while holding onto the significant job gains made since the pandemic.
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The RBA has held rates since a surprise tightening in November while highlighting that aggregate demand still exceeds the economy’s supply capacity. Australia’s 13 hikes between May 2022 and November 2023 are at the lower end of the global tightening scale.
Bullock has expressed a willingness to be patient as she seeks to slow inflation without choking off economic growth. The bank’s forecasts show that the Consumer Price Index (CPI) will only return to target in 2025.
The CPI report showed:
The most significant contributors were housing, food – led by takeaway meals – and transport.
Rents increased 7.4 per cent for the year, reflecting a tight rental market across the country, the ABS said.
Energy Bill Relief Fund rebates from July 2023 mostly offset electricity price rises, the bureau said. Excluding the rebates, prices would have risen 14.5 per cent in the 12 months to May 2024. BLOOMBERG