Economic growth moderates, Inflation eases to the lowest level

The latest data from the Australian Bureau of Statistics (ABS) reveals that inflation experienced a decline to 5.6 percent during the 12-month period ending in May. This figure represents a decrease from April’s 6.8 percent and falls below the market’s anticipated rise of 6.1 percent.

This increase occurs just prior to the upcoming decision by the Reserve Bank of Australia (RBA) regarding interest rates next week. It instills optimism for a potential break in the series of rate hikes, as the cash rate reached 4.1 percent in June.

According to the ABS, notable price increases were observed in categories such as furnishings, household equipment, and services (+6.0 percent), food and non-alcoholic beverages (+7.9 percent), as well as housing (+8.4 percent).

In contrast to those increases, there was an 8 percent drop in the price of automotive fuel, accompanied by marginal upticks across a variety of goods and services.

Michelle Marquardt, the Head of Prices Statistics at the ABS, commented that the 5.6 percent yearly increase represents the lowest level observed since April of the previous year.

“While prices have kept rising for most goods and services, many increases were smaller than we have seen in recent months,” she said.

By excluding items that demonstrate volatile price changes from the headline Consumer Price Index (CPI) calculation, a more reliable measure of underlying inflation is obtained.

“When excluding these volatile items, the decline in inflation is more modest,” Ms Marquardt said. “The annual increase for the monthly CPI indicator was 6.4 per cent in May, slightly lower than the rise of 6.5 per cent recorded in April and down from a peak of 7.3 per cent in December 2022.”

Items prone to volatility, such as automotive fuel, fruit and vegetables, and holiday travel, exhibited significant fluctuations on a monthly basis.

According to the ABS, housing costs experienced a notable increase of 8.4 percent in May, although it was slightly lower compared to the April surge of 8.9 percent. However, rents continued to rise during this period. Food and non-alcoholic beverages were yet another sector where prices surged ahead, registering a significant increase of 7.9 percent in the 12-month period ending in May. Bread and cereal products (+12.8 percent) as well as dairy and related products (+15.1 percent) were notable contributors to the substantial price increases observed in the food sector. 

According to Ms. Marquardt, the 8 percent decline in the cost of automotive fuel over the past year masked significant price fluctuations.

“The annual movement for automotive fuel remains volatile, partly reflecting price changes from 12 months ago. Annually automotive fuel prices fell 8.0 per cent in May, compared to a rise of 9.5 per cent in April.”

Holiday travel and accommodation experienced a 7.3 percent increase in the 12-month period ending in May, marking a decrease from the April rise of 11.9 percent. 

Following the low annual inflation figure, there was a resurgence in shares, with the ASX surging over 1 percent by noon. This development precedes the upcoming RBA board meeting scheduled for next Tuesday, during which the decision on whether to raise rates for the 13th time since last May will be made.

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