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Australia’s inflation level has surged – adding to fears of more interest rate pain for borrowers.
The monthly indicator reading showed the consumer price index soaring by 4 per cent in the year to May – up from 3.6 per cent in April.
Headline inflation is now further above the Reserve Bank’s 2 to 3 per cent target and at a new six-month high.
The bad news was delivered only a week after RBA Governor Michele Bullock confirmed a rate rise was more likely than a rate cut, with the cash rate this month left on hold at a 12-year high of 4.35 per cent.
‘Yes, the board did discuss the case for increasing interest rates at this meeting,’ she told reporters.
‘No, the case for a cut was not considered.’
Australia’s inflation level has surged – adding to fears of more interest rate pain for borrowers
The monthly measure of inflation is now back at the highest level since November 2023, when the Reserve Bank last raised interest rates.
The Australian Bureau of Statistics data, released on Wednesday, showed petrol prices climbing by 9.3 per cent over the year, with unleaded fuel selling for more than $2.10 a litre in capital cities.
This was ahead of insurance and financial services on 7.8 per cent and rents on 7.4 per cent.
But tobacco had the biggest increase of 13.4 per cent.
Electricity bills were up by 6.5 per cent.
The Commonwealth Bank, Westpac and NAB are still expecting a November rate cut but ANZ sees relief being delayed until February 2025.
The Reserve Bank isn’t expecting inflation to fall back into its 2 to 3 per cent target band until late 2025, despite the most aggressive rate rises since the late 1980s.
But a higher inflation reading could boost the Australian dollar, which eventually makes imports cheaper.
Saxo’s head of foreign exchange strategy Charu Chanana said this would occur as the Reserve Bank talked up the threat of inflation.
‘This will give room to the RBA to continue beating the rate hike drum for now and will also support the AUD, particularly on the crosses against currencies of central banks that remain dovish,’ she said.
The Reserve Bank is meeting again on August 5 and 6, following the July 31 release of June quarter inflation data which is more comprehensive than the monthly figures.
The bad news was delivered only a week after RBA Governor Michele Bullock confirmed a rate rise was more likely than a rate cut, with the cash rate this month left on hold at a 12-year high of 4.35 per cent
