Inflation drops to 5.6pc in May, reducing pressure on RBA rates decision

The Australian Bureau of Statistics (ABS) has released data regarding the ongoing cost-of-living crisis, revealing that its Consumer Price Index (CPI) rose by just 5.6 per cent in the 12 months to May 2023.

This month’s annual increase was reported as the smallest rise 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,” ABS Head of Prices Statistics Michelle Marquardt said.

May’s figures decreased from 6.8 per cent in April.

City Index Senior Market Analyst Matt Simpson highlighted it as the fastest pace of disinflation since July 2021.

“The rate of inflation has plunged from 6.8 per cent year or year to 5.6 per cent, which is its fastest pace of disinflation since July 2021,” he said.

“And that must come as a huge relief for the RBA board, even if it does remain high by historical standards.”

Prices in May fell as a result of fuel costs – down eight per cent – and housing lowered 8.9 per cent, despite further increases to rent prices.

Downward pressures on prices came from housing which lifted by 8.4 per cent, food and non-alcoholic beverages up 7.9 per cent, and furniture, household equipment, and services being boosted by more than six per cent.

“Rent price increases went up again from an annual rise of 6.1 per cent in April to 6.3 per cent in May as the rental market remains tight,” Ms Marquardt added.

Mr Simpson mentioned that the Aussie and US dollar has fallen to a three-week low, positioning the ASX 200 to break back above 7200.

“Inflation data for both Canada and Australia have fallen below expectations over the past four hours, and that should help support sentiment for equity traders ahead of Friday’s PCE inflation data for the US,” he said.

Following the latest release of monthly CPI figures, many analysts are forecasting the possibility of a rate pause at the RBA’s next meeting.