May inflation data cools as building costs ease

According to the latest data released by the Australian Bureau of Statistics (ABS), inflation in May 2023 rose by 5.6 per cent over the previous 12 months, marking a notable decrease from the 6.3 per cent recorded in April.

This was also below the quarterly data for March 2023 at 7 per cent, indicating a cooling trend in prices.

ABS head of prices statistics Michelle Marquardt said the 5.6 per cent increase in May was the “smallest increase since April” the previous year.

“While prices have kept rising for most goods and services, many increases were smaller than we have seen in recent months,” Ms Marquardt said.

While economists predict that the Reserve Bank of Australia’s (RBA) may raise interest rates further, with an anticipated peak of 4.6 per cent, as part of its efforts to bring inflation back within the target range of 2–3 per cent, the latest inflationary figures may come as a positive development ahead of the upcoming monetary policy meeting on 4 July.

The ABS data revealed that the most significant price increases were observed in housing (8.4 per cent); food and non-alcoholic beverages (7.9 per cent); and furniture, household equipment, and services (6 per cent).

However, housing inflation slightly declined from the 8.9 per cent recorded in April

“New dwelling prices rose 8.3 per cent, which is the lowest annual growth since November 2021, as building material price increases continue to ease,” Ms Marquardt said.

“The main contributor to this increase was meals out and takeaway food which increased from 7.3 per cent in April to 7.7 per cent in May, as higher costs of ingredients, rents, utilities, and wages were passed on.”

Rents were 6.3 per cent higher over the year to May and are tipped to increase further due to the ultra-tight rental market.

In addition, electricity was up by 14.1 per cent over the year to May, weighing heavily on housing inflation.

The ABS also highlighted that volatile items such as automotive fuel, fruit and vegetables, and holiday travel can have a significant impact on CPI inflation.

Excluding these items, the decline in inflation was more modest, with the annual increase in the monthly CPI indicator at 6.4 per cent in May, slightly lower than the 6.5 per cent rise recorded in April and down from a peak of 7.3 per cent in December 2022.

[Related: Major banks agree cash rate peak is 4.6%]