Australia's consumer price index inflation up 5.6 per cent in May, down from April's 6.8 per cent

Inflation is still at stubbornly high levels stirring fears of more interest rate rises that could spark a recession.

The consumer price index rose by 5.6 per cent in May, down from an annual pace of 6.8 per cent in April but still well above the Reserve Bank’s 2 to 3 per cent target.

Electricity and food prices rose by double-digit figures over the year, but petrol prices have in fact fallen compared with the same month in 2022. 

Treasurer Jim Chalmers said inflation was moderating after last year hitting levels unseen since 1990.

‘We expect it to stay higher than we’d like, for longer than we’d like, but still tracking in the right direction,’ he told the Property Council of Australia in Darwin on Wednesday.

The major banks are all expecting the Reserve Bank of Australia to raise interest rates again next week, which would be the 13th increase since May 2022. 

Inflation is still at stubbornly high levels stirring fears of more interest rate rises (pictured is a Woolworths shopper in Sydney)

The 12 increases, so far, in just 13 months have marked the most aggressive pace of monetary policy tightening since 1989, with some economists worried about the increases tipping Australia into a recession.

The RBA isn’t expecting inflation to fall to three per cent target until June 2025.

Electricity prices soared by 14.1 per cent over the year, the Australian Bureau of Statistics data released on Wednesday showed.

Food prices are still rising by double-digit figures with bread and cereal prices rising by 12.8 per cent and dairy product costs going up by 15.1 per cent.

Housing costs – covering rents, mortgages and utility bills – rose by 8.4 per cent.

But in signs of hope, fruit and vegetable prices rose by just 2.7 per cent over the year. 

Petrol prices in fact fell by eight per cent over the year, with crude oil prices moderating since the early months of Russia’s Ukraine invasion. 

In April, fuel prices were rising at an annual pace of 9.5 per cent, demonstrating the volatility of commodity markets. 

Holiday and travel accommodation costs rose by 7.3 per cent annually in May but this was an improvement from April’s 11.9 per cent increase. 

Insurance and financial services costs rose by 7.8 per cent, up from 6.7 per cent. 

Dr Chalmers on Wednesday said the Budget surplus for 2022-23 would be bigger than the $4.2billion figure announced in May. 

The major banks are all expecting the Reserve Bank of Australia to raise interest rates again next week, which would be the 13th increase since May 2022 (pictured is governor Philip Lowe with his deputy and possible successor Michele Bullock)