Inflation remains stubbornly high, fueling fears of additional fee hikes that could trigger a recession.
The consumer price index rose 5.6% in May, compared with an annual charge of 6.8% in April, but actually exceeded the Reserve Bank’s target of 2-3%.
Prices for electricity and some fundamental food items increased by double digits within the 12 months, however gasoline costs have actually decreased compared to the identical month in 2022.
Treasurer Jim Chalmers said inflation was easing after hitting a 12-month range not seen since 1990.
“We expect it to stay higher than we’d like, longer than we’d like, but it’s still going in the right direction,” he told the Property Council of Australia in Darwin on Wednesday.
All the big banks are counting on the Reserve Bank of Australia to raise interest rates one more time next week, which could be the thirteenth hike since May 2022.
Inflation remains stubbornly high, prompting fears of further interest rate rises (pictured as a Woolworths shopper in Sydney)
The 12 hikes so far in just 13 months marked perhaps the most aggressive pace of financial tightening since 1989, and some economists fear the hikes could tip Australia into recession.
High-value goods will rise in the 12 months to May
DAIRY PRODUCTS: 15.1% improvement
ELECTRICITY: 14.1% improvement
BREAD, CEREAL PRODUCTS: an increase of 12.8%
HOUSING: 8.4% improvement
INSURANCE, FINANCIAL SERVICES: an improvement of seven.8%
TAKE AWAY, EAT OUT: an improvement of seven.7%
HOLIDAY TRAVEL, ACCOMMODATION: an improvement of seven.3%
The RBA does not expect inflation to fall to its three% target by June 2025.
Electricity costs rose by 14.1% over 12 months, according to information released by the Australian Bureau of Statistics on Wednesday.
However, food costs are rising by double digits, with bread and cereal costs up 12.8% and dairy prices up 15.1%.
Prices for takeaway and consumption of food have been increased by 7.7%.
Housing prices – rent, mortgage and utility payments – increased by 8.4%.
But as an indicator of hope, fruit and vegetable costs rose by just 2.7% over 12 months.
Gasoline costs fell by a surprising eight% in 12 months, as crude oil prices fell in the first months of Russia’s invasion of Ukraine.
Gas costs rose by an annualized 9.5% in April, signaling volatility in global commodity markets more than 12 months after sanctions were imposed on Vladimir Putin’s regime.
Holiday and travel bills rose by 7.3% year-on-year in May, but that was an improvement on April’s 11.9% increase.
Insurance and monetary business costs increased by 7.8% from 6.7%.
All the big banks are counting on the Reserve Bank of Australia to raise interest rates one more time next week, in what could be its thirteenth hike since May 2022 (Governor Philip Lowe is pictured with his deputy and executive successor, Michelle Bullock).
dr. Chalmers mentioned on Wednesday that the surplus of funds in 2022-2023 will exceed the $4.2 billion introduced in May due to higher royalties from coal costs.
“So I am pleased to say that two days after the end of the financial year, we are still on track,” he mentioned.
In fact, we are in a significantly higher place than we predicted.
“I can reveal today that we expect the surplus in May to be larger than forecast.”
Aggressive fee hikes threaten to trigger prime rate-driven recession since 1991, just three years after summertime covid lockdowns and wildfires caused the financial system to contract for two straight quarters.
But Dr Chalmers argued that higher surpluses, which since 2007 have been largely based on short-term increases in coal and iron ore costs, would help reduce inflation.
“That means doing what we set out to do – rebuilding our buffers – and getting more energy out of the economy, just as we have to fight inflation,” he said.