According to the Australian Bureau of Statistics (ABS), consumer prices rose 2.1 per cent over the year to May, down from 2.4 per cent in April, marking the lowest level since October 2021.
The annual trimmed mean, which measures underlying inflation, fell to 2.4 per cent in May from 2.8 per cent in April, placing it firmly within the Reserve Bank’s target band of 2-3 per cent.
Housing inflation eased to 2 per cent in May, down from 2.2 per cent the previous month.
Rental price growth slowed to 4.5 per cent annually, compared to 5 per cent in April.
“This is the lowest annual growth in rental prices since December 2022, consistent with smaller increases in advertised rents and stable vacancy rates across most capital cities,” the ABS said.
New dwelling price increases also cooled to their lowest level since April 2021, with the ABS putting this down to project home builders offering discounts and promotional offers to entice business.
Domain’s Chief of Research and Economics, Dr Nicola Powell, said the latest figures were positive news for Australian households.
“With underlying inflation sitting firmly within the RBA’s 2-3 per cent target band, the case for a July rate cut just got a whole lot stronger,” Dr. Powell said.
“If the RBA moves as expected, it’ll be the third rate cut in this cycle – a much-needed boost for borrowers dealing with mortgage affordability.”
Dr Powell said that lower interest rates would increase borrowing power and potentially help first-home buyers enter the property market this year.
“Yes, while lower rates usually push property prices up, we shouldn’t expect a runaway market,” she said.
“Slower population growth, improved housing supply, and persistent affordability challenges are likely to keep a lid on sharp price gains.
“The latest inflation data delivers welcome news for Aussie households.”
The softer inflation figures have increased market expectations for an interest rate cut when the Reserve Bank meets in early July.
Following the data release, market pricing indicated an 88 per cent chance of a rate cut, up from 81 per cent before the announcement.
