RBA Likely to Cut Rates in July as Inflation Drops 📉

Financial markets are pricing in a more than 90 per cent chance that the Reserve Bank will lower interest rates in July after inflation fell more than expected. Cost pressures across the economy are easing, strengthening the case for the central bank to move. Fears of an inflation shock caused by the war in the Middle East have subsided after Israel and Iran agreed to a fragile truce.

Consumer prices rose 2.1 per cent over the year to May, down from 2.4 per cent the previous month. The annual trimmed mean, a measure of underlying inflation, was down to 2.4 per cent in May, from 2.8 per cent in April, which the ABS said was its lowest rate since November 2021. While food and non-alcoholic beverages were the biggest contributor to the headline CPI, they rose 2.9 per cent over the year — down from 3.1 per cent in April. Electricity rebates continued to impact energy costs, with electricity prices down 5.9 per cent over the 12 months to May — that was a smaller fall than the 6.5 per cent in April. Rents rose 4.5 per cent over the year, down from 5 per cent a month earlier. New dwelling price rises also cooled to the smallest annual growth since April 2021, which the ABS attributed to "project home builders offering discounts and promotional offers to entice business."
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