Australian Inflation Update May 2025 –Australian Inflation Lower Than Expected
The Consumer Price Index (CPI) in May rose 2.1% year-on-year, slightly less than NAB’s forecast of 2.2% and lower than April’s 2.4%. That’s the second month inflation has slowed, pointing to a steady cooling trend. Because markets expected inflation to stay higher, this softer result could affect expectations for future interest rate decisions.
Core Inflation
When you strip out the more volatile categories – like fuel, fruit, vegetables and holiday travel – core inflation landed at 2.7%, down slightly from 2.8% in April. The trimmed mean, which filters out the biggest price moves at either end, also edged down to 2.4% from 2.8%. It’s a welcome cooling, but these underlying measures are still hotter than the Reserve Bank would like.
Groceries: Flat Whites and Flat Fruit
Food and non-alcoholic drinks rose 2.9% annually. Coffee, tea, and cocoa surged (+8.3%), so your morning brew might cost more than yesterday’s lunch. Fruit prices cooled dramatically, down from 6.1% to 2.8%, with mandarins, oranges, and apples lending a hand. Eggs? Still climbing Mount Everest at +19.3%. Apparently, the hens didn’t get the memo on easing inflation.
Fuel’s Still Falling – But Don’t Cheer Yet
Petrol prices fell 10% annually and 2.9% in May alone, thanks to softer global oil. Welcome relief, but historically volatile – and not to be relied on for sustained disinflation.
Rents and Builds: Slowing but Still Squeezing
Rents rose 4.5%, the lowest since late 2022, hinting at market stabilisation. New home prices edged up just 0.8%, with builders offering sweeteners to drum up demand. For now, the housing heatwave is easing to a simmer.
Electricity and the Rebate Riddle
Electricity prices dropped 5.9% year-on-year – but only on the books. Excluding government rebates, household bills would have been up 17.7% since June last year. The difference? Rebate timing, especially in Victoria. The relief is real, but structurally fragile.
Holiday Costs: Off-Peak at Last
Holiday travel prices rose just 0.6% over the year, but fell 7.0% in May as Aussies returned from school holidays and domestic demand tapered. Timing matters. So does the cost of that Byron Bay cabin.
Insurance Premiums Descending from Orbit
Insurance rose 3.9%, easing from April’s 7.6% – and miles off February’s 16.5% peak. Home and car cover are cooling, though premiums remain elevated relative to pre-COVID levels. Less pain at renewal time is better than none.
Market Implications: July Rate Cut Now Probable
With headline and underlying inflation softening beyond expectations, there is now a strong chance of a cash rate cut in July 2025. Slower wage growth, subdued consumer activity, and now a string of softer inflation readings all support a tilt toward easing. Unless the labour or retail data throws a late punch, watch for an RBA interest rate announcement on 8 July.
Looking Ahead: All Eyes on the RBA
The Reserve Bank of Australia may now be able to shift from firefighting mode to fine-tuning. Should July bring a cut in interest rates, as pricing suggests, we could see renewed enthusiasm for REITs, discretionary consumer names, and even small caps.
Wealthwise Graduates should stay sharp and focused on good opportunities.
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