Inflation spikes again sparking rate rise fears

Australians and the Reserve Bank of Australia (RBA) will be feeling disappointed after the Australian Bureau of Statistics (ABS) released the CPI indicator or May showing an annual increase of 4%, up from 3.4% in February.

Canstar group executive, financial services Steve Mickenbecker said the increase marks the third trot, confirming that inflation is off trajectory from hitting the RBAs 2-3% target range.

"The increase in the CPI Indicator will have the Reserve Bank moving towards the starting blocks and readying to fire the interest rate increase gun, just as the men line up for the 100 metre final in Paris, presuming that June quarter inflation reflects the same trend," Mickenbecker said.

"The CPI rose 1% in the March 2024 quarter from 0.6% in the December 2023 quarter and a further rise, or even a failure to fall, in the June quarter will test the Reserve Bank's patience."

Mickenbecker said with scant evidence that inflation is moving towards the target band, the RBA would likely feel uncomfortable waiting a further three months for the next CPI data release and will "surely lift rates in August".

"The risk of baked-in inflationary expectations is too high," he said.

"Three of the big banks have not announced a change in their projection for a rate cut and look to be sticking with November, but this looks optimistic today and could look even more so when the June quarter CPI is released in a month's time."

Meanwhile, trimmed mean annual inflation, which excludes one-off price impacts was 4.4% in May, this is up from 4.1% recorded in April.

The most significant price rises in the month of May were housing (+5.2%), alcohol and tobacco (+6.7%), transport (+4.9%) and food and non-alcoholic beverages (+3.3%).