An interest rate cut in just two weeks’ time is appearing increasingly likely after underlying inflation slowed to its lowest level in three-and-a-half years.
New data released by the Australian Bureau of Statistics this morning showed the monthly consumer price index slowed to 2.1 per cent in May, down from 2.4 per cent in April and right towards the bottom of the RBA’s target range.
It is also well below the market expectations, which had pencilled in 2.3 per cent as the most likely figure.
In more promising news for those hoping for a rate cut, the trimmed mean (or underlying or core inflation) slowed from 2.8 per cent to 2.4 per cent, its lowest level since November 2021.
Although the monthly figures are generally given less weight than the quarterly figures, the Reserve Bank’s next interest rate decision will be handed down on July 8, before the next instalment of quarterly data is released.
With only two lots of monthly inflation data to go on, economists believe the RBA will move to cut the cash rate for the third time this year at its next meeting.
“Australia’s inflation continues to fall faster than expected, and today’s softer-than-forecast reading of 2.1 per cent could be the final piece of the puzzle for the RBA to cut next month,” eToro market analyst Josh Gilbert said.
“With jobs weakening and prices cooling, the board may find it harder to justify staying on the sidelines… today’s data suggests the RBA no longer needs to wait,” he added.
Before this morning’s inflation data, investors had priced in an 89 per cent chance of a rate cut from 3.85 to 3.60 per cent next month.
“Markets were already leaning in favour of a rate cut next month, and this data will only solidify those expectations,” Gilbert said.
“This is exactly the kind of inflation print the RBA has been waiting for.
“Today’s reading also showed falling electricity prices and slower rental growth, which are key signs that cost-of-living pressures are starting to ease and are a significant factor for the central bank’s decisions.”
