Household borrowers could be forced to stomach another rate hike as soon as August after fresh figures showed inflation surged higher last month, underlining the Reserve Bank’s struggle to contain simmering price pressures.
The monthly consumer price index, a measure of goods and services cost across the economy, jumped to 4 per cent in the year to May, the Australian Bureau of Statistics said on Wednesday, up from 3.6 per cent in April.
Economists had been expecting a more modest increase of just 3.8 per cent.
However, annual headline inflation excluding holiday travel and other volatile items including fruit, vegetables and automotive fuel, eased slightly to 4 per cent, down from 4.1 per cent a month earlier.
Traders immediately bolstered their bets that the RBA would would move to increase interest rates for a 14th time since May 2022, with money markets ascribing a near 50 per cent chance of a rate hike at the central bank’s September meeting, and to above 40 per cent in August.
Prior to release, interest rate futures ascribed odds of just 20 per cent of a move higher in August.
While inflation steadily retreated through 2023, falling from an annualised peak of 8.4 per cent in December 2022 to 3.4 per cent 12 months later, progress has since stalled, with stubborn price pressures holding CPI outside the RBA’s 2 to 3 per cent target band.
By itself, Wednesday’s result won’t change the timing of if and when the RBA moves on interest rates, which affect variable mortgages and other loans.
However, given the minimal progress on inflation since December, the reading also stoked fears that the RBA could deliver another rate hike, which governor Michele Bullock revealed had been considered at the central bank’s most recent board meeting earlier this month.
The central bank board will deliver its next interest rate decision on August 6.
The June quarter CPI will be released on July 31.
More to come.
