Major boost for Aussie mortgage holders
Australian mortgage holders have received a major boost, with the latest inflation data coming in significantly lower than market expectations.
The latest consumer price index rose by 2.1 per cent for the 12 months to May 2025, beating expectations of 2.3 per cent.
The all-important trimmed mean inflation rate, which the Reserve Bank considers when making decisions about the cash rate, came in at 2.4 per cent, its lowest point since November 2021.
The money markets immediately jumped and are now factoring in an 85 per cent chance of a rate cut in July.
KPMG chief economist Brendan Rynne said Wednesday’s results showed a continued pattern of deflation across the Australian economy from both a headline and trimmed mean inflation perspective.
“From KPMG’s perspective, a 0.25 per cent basis point cut is warranted given the continued weakness in the private sector of the Australian economy,” he said.
“On top of that, any increase in demand that comes about from a further drop in interest rates is unlikely to stoke the inflation genie in an unhelpful way.”
State Street Global Advisors APAC economist Krishna Bhimavarapu said the issue of high inflation was “clearly out of the way”.
“We are tracking faint consumption and growth in Q2, and hence, the Bank may do well to frontload the cut to July,” he said.
“However, we think the cash rate might still end the year at 3.10 per cent, as the RBA might take a pause after front-loading cuts.”
Australia’s inflation undershoot came as the price of food and non-alcoholic beverages fell from 3.1 to 2.9 per cent over the month.
Federal Treasurer Jim Chalmers says “we’ve made a hell of a lot of progress” but stopped short of calling it “job done”.
“I’m reluctant to say it’s mission accomplished but we are certainly making more progress than what we expected,” Mr Chalmers said.
“We are further along the path than economists were expecting and that is a good thing.”
Prices for fruit and vegetables rose 2.8 per cent in the 12 months to May, down significantly from a 6.1 per cent rise in the 12 months to April.
Fruit prices fell 2.7 per cent in the month of May with lower prices for mandarins, oranges, avocados and apples.
“While annual inflation eased for most food categories in April, egg prices were up by 18.6 per cent in the past 12 months,” Australian Bureau of Statistics head of prices statistics Michelle Marquardt said.
“This comes as supply has been affected by bird flu outbreaks.”
