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Inflation has risen once again, with the monthly consumer price index (CPI) surging to its highest level this year, sparking fears of another interest rate rise.
According to new data from the Australian Bureau of Statistics, the monthly CPI indicator hit 4 per cent for May – far higher than April's 3.6 per cent, and above the 3.8 per cent the market had predicted.
The last time it was higher was in November, when it was sitting at 4.3 per cent.
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The higher-than-expected rise marks the third straight month of growing inflation, and has stoked fears that the Reserve Bank may increase interest rates for a 14th time.
"The increase in the CPI Indicator will have the Reserve Bank moving towards the starting blocks and readying to fire the interest rate increase gun, just as the men line up for the 100-metre final in Paris, presuming that June quarter inflation reflects the same trend," Canstar's Steve Mickenbacker said.
"The CPI rose 1.0 per cent in the March 2024 quarter from 0.6 per cent in the December 2023 quarter and a further rise, or even a failure to fall, in the June quarter will test the Reserve Bank's patience.
"With scant evidence that inflation is moving towards the target band, the Reserve Bank will feel uncomfortable waiting a further three months for the following release of quarterly CPI, and will surely lift rates in August.
"The risk of baked-in inflationary expectations is too high."
However, the CPI excluding volatile items and holiday travel actually dropped from 4.1 to 4 per cent, which other experts say may dissuade the RBA from another hike – although it certainly won't be reaching for a cut anytime soon.
"Looking at the two different measures, what we can ascertain is that underlying inflation is remaining sticky, though not increasing, and the volatile items continue to bounce around, depending on seasonality and weather factors," CreditorWatch chief economist Anneke Thompson said.
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"There are clearly price pressures still to be worked through in the economy… today's result hardens our view that the cash rate will stay at current levels until well into 2025.
"While a higher cash rate will help tame inflation faster, the stress indicators in the business community are so high that this will likely result in too high a rise in unemployment which the RBA is trying to avoid."
The Reserve Bank has said inflation needs to come back to target far quicker for it to pull the trigger on a rates cut.
"We need a lot to go our way if we're going to bring inflation back down to the 2-3 per cent target range," Michele Bullock said after the RBA's rates decision last week.
"The board does need to be confident that inflation is moving sustainably towards target, and it will do what is necessary to achieve that outcome."
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The Reserve Bank board won't meet to discuss interest rates until the first week of August – after the next round of quarterly inflation data, which typically has a greater impact on its decisions.
However, it has discussed the prospect of raising rates during its last two meetings, before ultimately deciding to leave them on hold at 4.35 per cent.
The primary driver of the unexpectedly high inflation rise last month was housing costs, which rose 5.2 per cent over the last year.
"Rents increased 7.4 per cent for the year, reflecting a tight rental market across the country," the ABS said.
"The annual rise in new dwelling prices remained steady at 4.9 per cent with builders passing on higher costs for labour and materials."
