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Rate cut hopes crushed as inflation flares, raising risk of additional RBA hike
Millions of Australian home owners may be forced to wait even longer for mortgage relief after fresh inflation figures reignited concerns that interest rates could remain higher for longer, or even rise again.
New data released by the Australian Bureau of Statistics has dealt a significant blow to expectations that the Reserve Bank of Australia (RBA) is nearing the end of its tightening cycle, with underlying inflation unexpectedly ticking higher in May.
While headline inflation eased to 4.0 per cent from 4.2 per cent in April, the RBA’s preferred measure of inflation, the trimmed mean, rose from 3.4 per cent to 3.6 per cent.
The increase is likely to alarm policymakers, as trimmed mean inflation strips out volatile price movements and is regarded as the clearest indicator of persistent inflationary pressures across the economy.
Electricity prices surged 21 per cent, highlighting ongoing cost-of-living pressures facing households despite government promises to ease energy bills.
While government figures have cited geopolitical tensions in the Middle East as a factor in inflation pressures, the consumer price index (CPI) showed no clear corresponding inflationary spike, with transport, food, and fast-moving consumer goods (FMCG) all seeing modest increases.
The figures have cast serious doubt over hopes of near-term interest rate relief and may strengthen the case for the RBA to tighten monetary policy.
The latest inflation data comes weeks after RBA governor Michele Bullock raised concerns about the role of government spending in driving inflationary pressures across the economy.
“The extent to which the government make up the shortfalls for households by giving them more money makes it harder to dampen demand,” she said.
The Coalition seized on the latest figures, accusing the Albanese government of exacerbating inflation through excessive spending.
Shadow Treasurer Tim Wilson said Labor’s approach was fuelling price pressures across the economy.
“The Albanese government’s economic model is to stoke inflation, tax inflation, and spend inflation, perpetuating a cycle that ensures Australians pay higher prices at supermarkets,” he said.
“Jim Chalmers is like the cosplay arsonist pouring debt petrol on the inflation fire, burning away at the future economic prosperity of Australia.”
The inflation setback comes against an increasingly fragile economic backdrop.
Recent labour force data showed employment fell by 18,600 people in April, adding to concerns that households and businesses are already struggling under the weight of elevated borrowing costs, declining confidence and flatlining productivity.
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