Australia’s consumer price index inflation rose 5.6 percent in May, up from 6.8 percent in April
Inflation is falling but STILL too high: Cost of living rose 5.6 per cent last month – as Australia looms into recession
- Inflation remains high despite 12 rate hikes
- Consumer price index increased by 5.6 percent in May
Inflation is still stubbornly high, fueling fears of further rate hikes that could trigger a recession.
The consumer price index rose 5.6 percent in May, up from an annual rate of 6.8 percent in April, but still well above the Reserve Bank’s target of 2 to 3 percent.
Electricity and food prices increased by double digits over the year, but gasoline prices have actually fallen compared to the same month in 2022.
Treasurer Jim Chalmers said inflation was moderating after reaching levels last year not seen since 1990.
“We expect it to stay higher than we’d like, longer than we’d like, but it’s still moving in the right direction,” he told the Property Council of Australia in Darwin on Wednesday.
The big banks all expect the Reserve Bank of Australia to raise interest rates again next week, which would be the 13th hike since May 2022.
Inflation is still stubbornly high, fueling fears of more interest rate hikes (pictured a Woolworths shopper in Sydney)
The 12 hikes so far in just 13 months marked the most aggressive pace of monetary tightening since 1989, with some economists concerned that the hikes would push Australia into recession.
The RBA does not expect inflation to fall to the three percent target until June 2025.
Electricity prices rose 14.1 percent over the year, according to data from the Australian Bureau of Statistics released on Wednesday.
Food prices are still rising in double digits, with bread and grain prices rising by 12.8 percent and the cost of dairy products rising by 15.1 percent.
Housing costs – rent, mortgages and utility bills – rose 8.4 percent.
But as a sign of hope, fruit and vegetable prices only rose by 2.7 percent over the year.
Gasoline prices actually fell by eight percent over the year, with the price of crude oil moderating since the early months of the Russian invasion of Ukraine.
In April, fuel prices rose at an annual rate of 9.5 percent, demonstrating the volatility of commodity markets.
Vacation and travel expenses rose 7.3 percent annually in May, but this was an improvement from April’s 11.9 percent increase.
Costs for insurance and financial services increased by 7.8 percent from 6.7 percent.
The big banks all expect the Reserve Bank of Australia to raise interest rates again next week, which would be its 13th hike since May 2022 (pictured is Governor Philip Lowe with his deputy and possible successor Michele Bullock)
Dr. Chalmers said on Wednesday the budget surplus for 2022-23 would exceed the $4.2 billion figure announced in May, thanks to higher royalties from coal prices.
“So I’m happy to say that two days into the end of the financial year, we’re still on track,” he said.
In fact, we are in a significantly better position than we predicted.
“Today I can reveal that we expect the surplus in May to be larger than forecast.”
The aggressive rate hikes threaten to unleash the first recession since 1991, caused by tighter monetary policy.
But Dr. Chalmers argued that a larger budget surplus, based on a temporary spike in commodity prices, would help reduce inflation.
“It means we have to do what we set out to do – rebuild our buffers – and get more energy out of the economy, just as we need to fight inflation,” he said.