Overall inflation actually fell 0.1 per cent from April to May,with petrol prices dropping for the first time since the start of the year while there were small declines in dairy goods,clothing,gas and communication. However,the drop was not as large as the 0.3 per cent fall recorded in May last year,pushing up the annual rate.
The high monthly number prompted analysts to declare the Reserve Bank board meeting in early August would be live. Financial markets put the chance of a rate rise at better than two in five,more than double the expectation before the release of the inflation figures.
Quarterly inflation data,which is less volatile than the monthly data and takes in all parts of the economy,is due to be released at the end of July. It will have a strong bearing on the RBA possibly taking the official cash rate to a 13-year high of 4.6 per cent in August.
Betashares’ chief economist David Bassanese described the figures as a “shocker”,saying they suggest price pressures remain broad due to a range of factors including immigration,public infrastructure spending,growing demand for health services,housing shortages and climate-related increases to energy and insurance costs.
“The upshot of today’s result is that it places enormous pressure on the Reserve Bank to not only not cut interest rates anytime soon,but potentially lift them further,” he said.
One of the largest increases in the month was the price of fruit and vegetables,which lifted by 2.3 per cent in May and has increased by 8 per cent since the start of the year. But dairy prices dropped by 0.4 per cent last month and are 0.7 per cent lower than at the start of the year.