Monthly CPI rises 2.1% in May, below expectations
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More news: Commonwealth Bank economists are now expecting an earlier rate cut on the back of softer-than-expected monthly inflation data.
CBA analysts' base case is now for a July rate cut followed by a further 25 basis point cut in August. Prior to today, they said July was "live" but they were expecting the next cut to be more likely for August.
"A combination of a dovish May RBA decision and the flow of data since sees us shift our base case to a rate cut in July," CBA economists said in a note on Wednesday afternoon.
"Today’s monthly CPI print capped off a flow of data that should provide comfort to the RBA that a swifter return of the cash rate to neutral is both manageable and needed," they said.
"The decision to the cut the cash rate in July will still be a close one. We expect there to be a discussion of both leaving the cash rate on hold and cutting by 25 basis points.
"The case to leave the cash rate on hold would be around diminished trade uncertainty since the heightened May environment, a still tight labour market and wanting to see a full quarterly CPI print. We expect though a 25 basis point cut will make the stronger argument."
Goldman Sachs economists have held firm on their expectations of a July rate cut, saying in a note they continue to expect 25 basis point cuts next month, followed by August and November.
AMP economist My Bui said the headline and trimmed mean indicator being at the lower end of the target band had set up "the perfect backdrop for the Reserve Bank to continue its cutting cycle in the July meeting".
Economists more confident of July rate cut following inflation data
More news: Economists are sharpening their predictions for next month’s Reserve Bank meeting, with several saying the latest inflation data adds to the case for a cut in July.
KPMG chief economist Brendan Rynne said the results released by the Australian Bureau of statistics on Wednesday morning “show a continued pattern of deflation across the Australian economy, both at a headline and from a core inflation perspective”.
He said this “could provide comfort to the Reserve Bank at its next meeting, knowing that any cut to the cash rate will occur in a stable inflationary environment”.
And he said a 25 basis point cut is “warranted” particularly given weakness in the private sector.
Betashares chief economist David Bassanese said the new data is “reassuring” and “keeps the door open” for a July cut. However, he still thinks the RBA will hold until August when it will have seen the more comprehensive quarterly inflation figures due late next month.
EY chief economist Cherelle Murphy thinks the low inflation figures is likely to continue and, when combined with the weak private sector activity and global uncertainty, suggests the RBA “will deliver further monetary easing in July”.
And State Street Global Advisors’ APAC economist Krishna Bhimavarapu is “convinced” a July cut is needed to “safeguard growth”.
Treasurer Jim Chalmers said in a statement that the progress on inflation was “substantial and now sustained”.
Chalmers has consistently refused to pressure the RBA into cutting rates or to share expectations for what he thinks the central bank might do.
He pointed out that headline and underlying inflation both fell more than expected and that the critical underlying measure has “returned to the middle of the RBA’s target band”.
“Underlying inflation has been in the RBA’s band for six consecutive months. This is the first time this has happened since the monthly inflation series began in 2018,” he said in a statement.
“This progress means Australia is better placed and better prepared than other countries for heightened economic uncertainty and volatility around the world.”
Monthly CPI rises 2.1% in May, below expectations
The news: The monthly CPI indicator rose 2.1% in the 12 months to May, its lowest read since October 2024 and down from 2.4% in the comparable period to April.
The market was expecting around 2.3%, while some economists were anticipating details underlying the headline figure to possibly indicate some risk to rate forecasts.
The numbers: The critical annual trimmed mean measure was 2.4% in May, down from 2.8% in April. This is the lowest result since November 2021.
The biggest contributors to the annual headline result were food and non-alcoholic beverages, up 2.9%, alcohol and tobacco, up 5.9%, and housing, up 2%.
When excluding volatile items and holiday travel, CPI was up 2.7% in the 12 months to May, down from 2.8% the prior month.
Rents were up 4.5% in the 12 months to May, its lowest annual growth rate since December 2022. Electricity prices fell 5.9%.
The context: This is the final critical indicator before the Reserve Bank's rate decision on 8 July. While this meeting is largely considered "live" for a rate cut some economists, such as those at the Commonwealth Bank, think August is more likely.
The RBA will also be looking closely at geopolitical tensions that have escalated since the last meeting and any implications for prices, though is likely to look through any temporary disruptions.
What they said: "The 2.1% annual CPI inflation in May was down from 2.4% in April and the lowest since October 2024," said ABS head of prices statistics Michelle Marquardt.
"Annual trimmed mean inflation was 2.4% in May 2025, down from 2.8% in April. This is the lowest annual trimmed mean inflation rate since November 2021," she said.
"Electricity rebates lower the cost of electricity for households. In Victoria, the impact of these rebates was lower in May than April due to the timing of payments.
"Without the Commonwealth and State government rebates, electricity prices would have risen 2% in the 12 months to May."
The source: Australian Bureau of Statistics media release
