Australia Sees a 4% Monthly Inflation Increase in May

Australia witnessed a rise in the monthly inflation rate in May, raising apprehensions about the likelihood of another interest rate hike.

This new rate surpassed market expectations of a 3.8 percent annual growth and marked the third consecutive surge since February.

The surge in prices in May was driven by escalations in various goods and service categories such as housing (up 5.2 percent), food and non-alcoholic beverages (up 3.3 percent), transport (up 4.9 percent), and alcohol and tobacco (up 6.7 percent).

Rents soared by 7.4 percent due to the tight rental market prevailing across the country.

Additionally, electricity prices increased by 6.5 percent as households utilized the electricity rebates provided by the government as part of its living cost relief package.

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Excluding volatile items from the CPI, the underlying inflation decreased from 4.1 percent in April to 4 percent in May.

Concerns About Another Interest Rate Hike

Following the release of this data, Innes Willox, the CEO of the Australian Industry Group, warned that the latest inflation figure was a clear indication that the Australian economy could witness further interest rate hikes in the near future.

During its June 2024 board meeting, the Reserve Bank of Australia opted to maintain the official cash rate at 4.35 percent.

Even though the rate has remained steady since November 2023, the central bank hinted at potential interest rate hikes to bring the inflation rate within its target range.

He added, “Many of our members across various sectors are reporting strong inflationary and cost pressures with no apparent signs of a slowdown.

“Any additional rate hikes will undoubtedly compel businesses to make tough decisions regarding their workforce.”

Mr. Willox then urged the government to play its part in curbing inflation.

Highlighting the uncontrolled spending in the May federal budget, he mentioned that it had led to escalating debt and deficits without effectively combating inflation.

Inflation Would Be Higher Without Labor’s Policies: Treasurer

On the other hand, Treasurer Jim Chalmers downplayed the concerns regarding the significant monthly CPI increase, attributing it to the volatile nature of the metric.

“As we’ve reiterated numerous times, the monthly CPI is subject to volatility and fluctuations due to not all items in the basket being updated each month,” he mentioned in a statement.

“The annual figure today was influenced by fuel prices and the effects of base impacts resulting from a substantial decline in month-to-month inflation in May 2023, impacting the May 2024 annual number.”

While acknowledging that inflation was higher than the Labor government desired, the treasurer noted that the May result was less than half of its peak and significantly lower than the 6.1 percent inherited by Labor from the Coalition.

“We recognize the pressure on individuals, but the ABS has confirmed that inflation would be even higher if not for our cost-of-living policies,” remarked Mr. Chalmers.

“Across the globe, we’ve witnessed how inflation can fluctuate before moderating, it doesn’t always decline in a linear fashion, and the final leg can be challenging.”