Australia May CPI is expected to show a split picture on Wednesday, with lower fuel prices pulling down the monthly headline reading while underlying inflation stays firm.
Major bank economists expect the monthly CPI indicator, due at 11:30 a.m. AEST on June 24, to show trimmed mean inflation rising to 3.5% to 3.6% year on year from 3.4% in April. That measure is the one the Reserve Bank of Australia watches most closely. Therefore, any upside surprise could lift sensitivity in the Australian dollar and local rate futures.
Headline inflation is expected to move the other way in monthly terms because fuel prices fell about 12% to 13% in May. CBA expects that drop to help push the annual headline rate to 4.1%, while Westpac and NAB see 4.4%. Meanwhile, the softer headline may make the release harder to read because markets and the RBA will need to look past fuel to judge broader price pressure.
Australia May CPI and Trimmed Mean
NAB and CBA both forecast annual trimmed mean inflation at 3.5%, while Westpac expects 3.6%. On a monthly basis, the banks see trimmed mean at 0.3% to 0.4%. As a result, the pace would remain above the RBA’s 2% to 3% target band.
CBA estimates market services inflation at about 3.7% year on year. Westpac expects its market services measure excluding volatile items to stay flat on the month. However, that measure rises 0.2% when both volatile items and holiday travel are excluded.
Housing Costs Remain a Key Risk
Housing will be one of the main parts to watch in the Australia May CPI report. Rents are expected to rise 0.3% on the month after 0.2% increases in each of the prior two months. Those earlier readings had been partly held down by increases in Commonwealth Rent Assistance.
New dwelling costs are a bigger upside risk. CBA forecasts a 0.9% monthly rise, which would lift annual new dwelling inflation to 5.6%, the fastest pace since July 2023. Westpac expects a smaller 0.5% gain, but it also warned that pipeline building costs and data centre construction are adding pressure on labour and materials.
Food prices may offset some of the fuel drag. Westpac expects food prices to rise 0.7% on the month, led by a rebound in fruit and vegetables after weak April data. NAB, meanwhile, said international travel prices remain hard to predict and could affect the result.
CBA said its simulations show a probability of just over 45% that trimmed mean comes in above its 3.5% central forecast, while the chance of an undershoot is under 20%.
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