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Australia’s Underlying Inflation Hits Highest Level Since 2024
While headline inflation moderated in May 2026, underlying inflation accelerated to 3.6%, raising concerns that persistent price pressures could delay interest rate cuts and complicate the Reserve Bank's policy outlook.
Key Highlights
- In May, Australia’s headline inflation decreased to 4.0% from 4.2% in April.
- The decline in fuel prices was a major contributor to the overall inflation fall.
- The trimmed mean inflation increased to 3.6% from a previous reading of 3.4%.
- Core inflation is at its highest since Q3 2024.
Consumer prices rose 4.0% on an annual basis in May, following a decrease of 4.2% in April, as Australia’s headline inflation eased in May. The decline was largely caused by falling prices for fuels, with the cost of automotive fuel having dropped 11.9% in the month.
Core inflation remained a rising trend. But the trimmed mean inflation, Bank of Australia’s preferred measure of underlying inflation, increased 3.6% in May from April’s 3.4%. Current quarterly underlying inflation in Australia is at its fastest rate since the September quarter of 2024, according to the data from the Australian Bureau of Statics (ABS).
Economists differ over interest rate outlook
The Reserve Bank has warned that inflation could stay high for some time as the fallout from a global energy shock continues to filter through supply chains.
Deloitte Access Economics partner Stephen Smith said the most recent data show Australia is still in the midst of challenges against inflation. Another interest rate hike for 2026 still remains a possibility.
Increased input, freight and agricultural costs are still passing on to consumers according to Oxford Economics Australia economist Harry Murphy Cruise. Even as the oil prices fell, inflation pressures could take long to ease, he said.
Oil prices have slid down from around US$120 a barrel in mid-May to below US$80 at present. With lower oil prices, fuel costs may drop further in the months to come.
BetaShares chief economist David Bassanese said the Reserve bank might be done hiking rates. He further noted that weaker confidence of firms and consumers along with past rate increases could push the economy into recession this year.
Source: ABC News
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