Monthly CPI surges

The Monthly Consumer Price Index (CPI) indicator rose 4 per cent in the year to May 2024, the Australian Bureau of Statistics has shown.

This was an increase of 0.4 per cent on the 3.6 per cent reading on the previous month’s CPI indicator.

According to the ABS, the largest contributors to the annual rise in May were housing at 5.2 per cent, food and non-alcoholic beverages (3.3 per cent), transport (4.9 per cent), and alcohol and tobacco (6.7 per cent).

Housing increased from the 4.9 per cent recorded in April, while rents rose 7.4 per cent for the year (down from 7.5 per cent in April), further indicating a tight rental market driving up rental price rises.

Meanwhile the annual rise in new dwelling prices remained steady at 4.9 per cent in May, maintaining its consistent annual price growth of around 5 per cent for the past 10 months, reflecting builders continuing to pass on higher costs for labour and materials, according to the ABS.

This month’s CPI print exceeded market expectations of a rise of 3.8 per cent, which confirmed that the higher-than-expected result in April was “not a one-off”, according to Judo Bank economist Matthew De Pasquale.

“It looks like inflation is picking up in 2024,” Pasquale said.

“Today’s result further strengthens the case for rate hikes in August.

“With the hawkish tone of the previous board meeting and the third consecutive upside surprise in inflation results (March quarter, April, and May), we believe the board will increase the cash rate from 0.25 bps to 4.60 per cent.”

Commonwealth Bank of Australia (CBA) economist Stephen Wu said the Reserve Bank of Australia (RBA) will take stock of the figures “with some concern” given its rhetoric of heightened vigilance towards the upside risks to inflation.

“However, there is still the full June quarter CPI print to come. This remains the benchmark measure of inflation in the country,” Wu said.

“Between now and the August Board meeting, the RBA will also receive another read of the labour force survey and two more reads on retail spending.

“The August RBA Board meeting in our view has been ‘live’ for some time now. The May inflation figures add to the risks of an interest rate hike but this other data flow will also play an important role.”

Catherine Birch, ANZ senior economist, said that this result will “make the RBA a little nervous” as it increases the risk of the 2Q CPI overshooting their forecasts of 3.8 per cent.

“If this occurred alongside upward revisions to the RBA’s expectations for activity and labour market data, the RBA could lift the cash rate, although a rate hike is not our base case,” Birch said.

“It is possible that Australia is experiencing a temporary stalling in the disinflation process, similar to what the US went through early this year. Disinflation looks to have resumed in the US in April and May.”

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