Interest rate hikes remain on cards as Australia’s underlying inflation climbs, economists warn

Australia’s inflation challenge is far from over and more Reserve Bank rate hikes remain on the cards , economists warn, even after a plunging petrol costs drove an unexpected fall in consumer price growth in the year to May. Annual inflation dropped to 4%, from 4.2% in the year to April, according to the Australian Bureau of Statistics, dragged down in large part thanks to a nearly 12% drop in fuel prices in the month of May. The consensus view among experts had been for inflation to accelerate to 4.4%; but the flattering “headline” result masked a further lift in underlying price pressures. The ABS’s trimmed mean measure of inflation – which is preferred by the RBA as it removes large, temporary price swings – climbed to 3.6% in the year to May, from 3.4% the month before. Underlying and headline rate inflation. Underlying and headline rate inflation. Jim Chalmers welcomed the lower headline rate of inflation, even as he said his government was not “complacent” about the risks . “We know that there are still inflationary pressures in our economy. But these numbers today are much better than the market expected, much better than forecast, and that’s obviously a very good thing,” the treasurer said. Sign up for the Breaking News Australia email Evidence that higher fuel costs were being passed through the supply chain was apparent in the 0.9% increase in home building costs in the month of May, which was the most since late 2022. …