Australia’s consumer price index (CPI) inflation cooled more than anticipated in May, with core inflation falling to its lowest level in over three years — potentially giving the Reserve Bank of Australia (RBA) greater flexibility to ease interest rates further.
According to data released Wednesday by the Australian Bureau of Statistics, annual headline inflation rose by 2.1% in May, below market expectations of 2.3% and down from 2.4% in April. This marked the slowest pace of CPI growth in seven months.
Core inflation, measured by the trimmed mean CPI, increased by 2.4% annually in May — easing from 2.8% in the prior month and marking the lowest level since November 2021.
Meanwhile, CPI excluding volatile components and holiday travel rose by 2.7% in May, slightly softer than the 2.8% recorded in April.
The pullback in inflation was largely driven by reduced electricity costs, supported in part by ongoing government rebates. However, the broader trend suggests a persistent decline in inflation, amid weakening business activity and constrained consumer spending due to ongoing economic uncertainty.
With inflation now firmly within the RBA’s 2%–3% target range, policymakers may find more room to consider additional rate cuts in the near future.
So far in 2025, the RBA has reduced interest rates twice, lowering the benchmark rate by a total of 50 basis points to 3.85%. The central bank has indicated that any further easing will depend on incoming inflation data and the overall health of the domestic economy.
