Australia’s monthly inflation fell faster than expected in May, with business leaders weighing in on what the 2.1% reading means for their sectors
Australia’s monthly Consumer Price Index (CPI) indicator dropped to 2.1% in May, falling 0.4% month-on-month and landing at the bottom end of market forecasts. The trimmed mean measure also cooled from 2.8% in April to 2.4% in May, well below economist expectations of 2.6%.
The result has pushed the probability of a July RBA rate cut from 88% to 93%, prompting business leaders across sectors to assess what the inflation moderation means for their operations and customers.
Property sector: ‘Buyers’ minds are made up’
Oliver Hume Chief Economist Matt Bell says the inflation data will galvanize property market activity.
“Today’s good news on inflation will cement in property buyers’ minds that mortgage payments are going to fall and that they can borrow that little bit more to enter the market,” Bell said.
“On balance, it increases the chance of the RBA moving again to cut rates at the next meeting on July 8th. Markets had already priced in an 88% chance of this happening, and a further cut to follow in August. The odds for the July cut rose to 93% after the announcement.”
While Bell acknowledges the RBA may want to see the next quarterly inflation number on July 30th before acting, he remains optimistic about the trajectory for borrowers.
“The underlying story hasn’t changed. Mortgage holders and purchasers can still expect some relief or a boost to their purchasing power by Christmas.”
Small business: Mixed relief
Employment Hero CEO Ben Thompson welcomed the inflation moderation but warned that significant challenges remain for small businesses.
“CPI coming in lower than expected this month is exactly the result small businesses needed. Easing inflation brings hope for rate cuts and genuine cost relief – but it doesn’t mean SMBs are out of the woods yet,” Thompson said.
“Employment Hero’s latest data shows wage growth is still running hot at 5% YoY, more than double inflation, with even sharper increases among younger workers and tradies. At the same time, hours worked are flatlining and compliance demands are increasing. Employers are effectively paying more for less output, all while navigating the same high interest rates.”
Thompson emphasized that without corresponding interest rate cuts, businesses won’t see meaningful relief in cash flow or borrowing costs, particularly with minimum wage and superannuation guarantee increases taking effect from July 1.
“Lower inflation is a meaningful step forward, but some challenges still remain for business owners.”
Fintech: Time to strengthen foundations
GoCardless Australia & New Zealand Account Director Kyle Willersdorf sees the CPI reading as creating crucial breathing room for small businesses.
“Today’s CPI reading of 2.1% is exactly what small businesses needed as it supports the RBA’s recent rate cut and sets the scene for an additional cut next month,” Willersdorf said.
“Following a long period of difficult conditions, this is the breathing room SMBs have been waiting for in order to strengthen their financial foundations. Using this relief period to integrate automated payment systems now means businesses can keep their revenue secure while taking more advantage of growth opportunities. This is the perfect time to do so, just ahead of EOFY and against the backdrop of an improving economy.”
Markets: “Final piece of the puzzle”
eToro Market Analyst Josh Gilbert believes the inflation data removes the last barrier to RBA action. “Australia’s inflation continues to fall faster than expected, and today’s softer-than-forecast reading of 2.1% could be the final piece of the puzzle for the RBA to cut next month,” Gilbert said.
“Markets were already leaning in favour of a rate cut next month, and this data will only solidify those expectations. This is exactly the kind of inflation print the RBA has been waiting for. Today’s reading also showed falling electricity prices and slower rental growth, which are key signs that cost-of-living pressures are starting to ease and are a significant factor for the central bank’s decisions.”
Gilbert cautioned that while the disinflation trend is intact, the RBA shouldn’t be overly aggressive.
“Australia’s inflation fight isn’t over, but today’s result shows it’s entering the final rounds. The disinflation trend is clearly intact and gaining momentum, showing us that the RBA’s job is largely done. This doesn’t green light aggressive easing, especially with global risks still looming, but holding too tight for too long could unnecessarily hurt the economy, especially with household spending still under pressure.”
Economic analysis: Cuts justified
CreditorWatch’s analysis suggests the data validates the RBA’s recent forecasting assumptions, which were based on delivering two more rate cuts.
The report notes that price pressures are easing across key categories including rents, new dwellings, insurance, fuel, food, and travel – all areas that saw significant COVID-era spikes.
“As today’s monthly CPI suggests that the forecast inflation moderation is on track, I see no reason why the RBA won’t further reduce interest rates at its July meeting, as well as in August,” the analysis states.
The broad-based nature of the price moderation includes a 2.9% month-on-month fall in fuel prices, continued food price moderation as supermarket competition intensifies, and a 7% fall in holiday travel and accommodation costs.
With the RBA’s next meeting scheduled for July 8th, business leaders across sectors are positioning for potential rate relief. The quarterly CPI data due July 30th will provide additional confirmation, but today’s monthly indicator suggests the central bank has the green light to act.
For businesses, the challenge now is how to capitalize on improving conditions while managing ongoing cost pressures, particularly in wages and compliance, that continue to squeeze margins despite the broader disinflationary trend.
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