| Consensus | Actual | Previous | |
|---|---|---|---|
| CPI - Y/Y | 6.1% | 5.6% | 6.8% |
Highlights
Australia's inflation rate slowed to a 13-month low of 5.6 percent in May after bouncing back to 6.8 percent in April from 6.3 percent in March. It was much lower than the median economist forecast of 6.1 percent and lowest since 5.5 percent seen in April 2022. The monthly consumer price index has drifted down from a recent peak of 8.4 percent hit in December.
However, the year-over-year increase in the core consumer price index (excluding volatile items of fruit, vegetables and automotive fuel as well as holiday travel) eased only slightly to 6.4 percent in May from 6.5 percent in April. It has also slowed from a peak of 7.3 percent in December.
The increase in the total CPI was led by housing (up 8.4 percent), food and non-alcoholic beverages (up 7.9 percent) and furniture, household equipment and services (up 6.0 percent). Partly offsetting the rise was a fall in automotive fuel (down 8.0 percent) as global energy prices have eased after last year's spike.
The Reserve Bank of Australia's board decided to increase the cash rate target by 25 basis points to 4.10 percent on June 6."Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve," Governor Philip Lowe said in his policy statement.
However, the year-over-year increase in the core consumer price index (excluding volatile items of fruit, vegetables and automotive fuel as well as holiday travel) eased only slightly to 6.4 percent in May from 6.5 percent in April. It has also slowed from a peak of 7.3 percent in December.
The increase in the total CPI was led by housing (up 8.4 percent), food and non-alcoholic beverages (up 7.9 percent) and furniture, household equipment and services (up 6.0 percent). Partly offsetting the rise was a fall in automotive fuel (down 8.0 percent) as global energy prices have eased after last year's spike.
The Reserve Bank of Australia's board decided to increase the cash rate target by 25 basis points to 4.10 percent on June 6."Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve," Governor Philip Lowe said in his policy statement.
Market Consensus Before Announcement
Consumer prices in May are expected to ease to 6.1 percent year-over-year versus 6.8 percent in April which compared with expectations for 6.3 percent.
Definition
The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by households for a fixed basket of goods and services. In Australia, the CPI measures the changes in the price of a fixed basket of goods and services, acquired by household consumers who are residents in the eight State/Territory capital cities. (Darwin, Perth, Sydney, Melbourne, Hobart, Brisbane, Canberra and Adelaide).
Data are released quarterly and, since 2022, monthly. Quarterly inflation data measure the year-over-year change in the index relative to the same quarter twelve months previously. Monthly inflation data measure the year-over-year change in the index relative to the same month twelve months previously.
Data are released quarterly and, since 2022, monthly. Quarterly inflation data measure the year-over-year change in the index relative to the same quarter twelve months previously. Monthly inflation data measure the year-over-year change in the index relative to the same month twelve months previously.
Description
The consumer price index is the most widely followed indicator of inflation. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. In countries such as Australia, where monetary policy decisions rest on the central bank's inflation target, the rate of inflation directly affects all interest rates charged to business and the consumer.
Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets - and your investments. Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.
By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.
For monetary policy, the Reserve Bank of Australia generally follows the annual change in the consumer price index. It has an inflation target of 2 percent to 3 percent. The RBA also has two preferred core or analytical measures - the weighted and trimmed means. The trimmed mean is a method of averaging that removes a small percentage of the largest and smallest values before calculating the mean. After removing the specified observations, the trimmed mean is found using an arithmetic averaging formula. The weighted mean excludes certain items from the CPI basket (the exclusion approach). Typically, the excluded items are those that are volatile and/or display pronounced seasonal patterns, and those that are subject to administrative price setting.
Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets - and your investments. Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.
By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.
For monetary policy, the Reserve Bank of Australia generally follows the annual change in the consumer price index. It has an inflation target of 2 percent to 3 percent. The RBA also has two preferred core or analytical measures - the weighted and trimmed means. The trimmed mean is a method of averaging that removes a small percentage of the largest and smallest values before calculating the mean. After removing the specified observations, the trimmed mean is found using an arithmetic averaging formula. The weighted mean excludes certain items from the CPI basket (the exclusion approach). Typically, the excluded items are those that are volatile and/or display pronounced seasonal patterns, and those that are subject to administrative price setting.
