Falling inflation rate boosts chances of RBA interest rate cut and relief for mortgage holders
Australia's inflation rate has eased again, bolstering expectations the Reserve Bank will lower the cash rate next month and bring further reprieve for mortgage holders.
The headline inflation rate was 2.1% in the 12 months to May, down sharply on the previous month's figure of 2.4%, according to consumer price index figures released on Wednesday.
KPMG chief economist Brendan Rynne said there was a 'continued pattern of deflation across the Australian economy'.
'This could provide comfort to the Reserve Bank at its next meeting, knowing that any cut to the cash rate will occur in a stable inflationary environment,' Rynne said.
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Krishna Bhimavarapu, economist at State Street Global Advisors, said: 'We are convinced that the RBA needs to cut in July to safeguard growth as inflation is clearly out of their way now.'
While the monthly result can be volatile and is viewed as less authoritative than quarterly figures, the steep fall has pushed inflation towards the bottom of the RBA's 2-3% target range.
The RBA's preferred CPI measure, the 'trimmed mean' or underlying inflation rate that strips out volatile items and various government subsidies, decreased to 2.4% from 2.8%.
Markets upped their bets on a rate cut after the data was released, with markets now indicating near consensus support for a quarter point cut on 8 July. In total, traders expect three more rate cuts this year.
While further rate cuts will be welcomed by mortgage holders, any further reduction in borrowing rates is expected to fuel another surge in property prices, making homes more unaffordable for prospective buyers.
Economists at the major banks still believe the RBA will wait until August to cut.
ANZ economist Madeline Dunk said the July meeting would be a 'close call'.
'It's going to be a pretty tough decision and it really depends on how concerned the RBA is about what's been happening globally,' Dunk said.
She said the disruption caused by the initial US tariff announcements had faded, giving economic activity a chance to stabilise.
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