July interest rate cut all but locked in after trimmed mean inflation plunges to 2.4 per cent in the 12 months to May
Inflation has fallen in the 12 months to May, effectively cementing an interest rate cut when the Reserve Bank of Australia next meets.
New data from the Australian Bureau of Statistics showed headline inflation fell from 2.4 per cent to 2.1 per cent and exceeded expectations.
Trimmed mean inflation – the middle 70 per cent of price changes core to the RBA's upcoming interest rate call – fell from 2.8 per cent to 2.4 per cent in May.
This marks the lowest annual trimmed mean inflation since November 2021.
Money markets were expecting headline inflation, which includes all items in the ABS' consumer price index, to come in at 2.3 per cent.
The latest inflation data comes ahead of the central bank's upcoming cash rate call where it is tipped to deliver mortgage holders their third rate cut of the year.
Prior to the release of Wednesday's inflation data, money markets were factoring in an 81.4 per cent chance of a cut.
After the release of the data, the chances of a rate cut has grown to 85 per cent, while the chance of no cut has fall from 18 to 15 per cent.
KPMG's chief economist Brendan Rynne said the latest data could provide comfort to the RBA at its next meeting.
"From KPMG's perspective, a 0.25 per cent cut is warranted given the continued weakness in the private sector of the Australian economy," Mr Rynne said.
"On top of that any increase in demand that comes about from a further drop in interest rates is unlikely to stoke the inflation genie in an unhelpful way."
A rate cut in July will be the third from the RBA after it slashed rates in February and May.
This followed the central bank holding the cash rate at 4.35 per cent for almost 18 months to stamp out post-pandemic inflation.
The largest contributors to the annual price changes in May was food and non-alcoholic beverages (up 2.9 per cent), followed by housing (up two per cent) and alcohol and tobacco (up 5.9 per cent).
The ABS' head of price statistics, Michelle Marquardt, noted that non-alcoholic beverages surged in May due to global factors impacting supply.
'Non-alcoholic beverage prices remain high, with coffee, tea and cocoa prices up by 8.3 per cent over the past 12 months,' Ms Marquardt said.
'Higher prices for coffee drove the rise with adverse weather conditions impacting major overseas coffee bean-growing areas.'
Rents were up 4.5 per cent in the 12 months to May, marking the lowest annual growth in rental prices since December 2022, while new dwelling prices rose 0.8 per cent.
Electricity prices fell 5.9 per cent in the 12 months to May.
This was lower than the 6.5 per cent plunge electricity prices took in the 12 months to April due to the timing of government rebates.
'In Victoria, the impact of these rebates was lower in May than April due to the timing of payments,' Ms Marquardt said.
'Without the Commonwealth and State government rebates, electricity prices would have risen 2.0 per cent in the 12 months to May.'
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