Inflation continues to drop, calls for RBA cut grow

The Australian Bureau of Statistics (ABS) data shows inflation rose 2.1% in the 12 months to May, down from 2.4% in April.

"The 2.1% annual Consumer Price Index (CPI) inflation in May was down from 2.4% in April and the lowest since October 2024," ABS head of prices statistics Michelle Marquardt said.

"Annual trimmed mean inflation was 2.4% in May 2025, down from 2.8% in April. This is the lowest annual trimmed mean inflation rate since November 2021."

The CPI excluding volatile items and holiday travel measure rose 2.7% in the 12 months to May, compared to a 2.8% rise in the 12 months to April.

State Street Global Advisors APAC economist Krishna Bhimavarapu said the data will put pressure on the Reserve Bank of Australia (RBA) to deliver another interest rate cut at the next meeting.

"We are convinced that the RBA needs to cut in July to safeguard growth as inflation is clearly out of their way now: the trimmed-mean CPI at 2.4% is the lowest since November 2021," Bhimavarapu said.

"We are tracking faint consumption and growth in Q2, and hence, the bank may do well to frontload the cut to July. However, we think the cash rate might still end the year at 3.10%, as the RBA might take a pause after frontloading cuts."

Betashares chief economist David Bassanese agreed a July rate cut could be on the cards as deflation continues.

"The substantial easing in annual trimmed mean inflation in the May monthly CPI report is reassuring news after the slight uptick in the previous month," Bassanese said.

"The low trimmed mean result keeps the door open for a potential RBA rate cut in July, but my base case is the bank will still wait until August - following confirmation of low underlying inflation in the more comprehensive and reliable quarterly CPI report in late July."

Speaking at a press conference yesterday, Treasurer Jim Chalmers said he was hopeful inflation data would continue to be within the RBA's target range of 2-3%.

"This will be a very substantial indication that we have got inflation down substantially and sustainably in our economy." Chalmers said.

"This monthly inflation data is not as reliable as the quarterly figures but it's an important indication of the progress that Australians have made together when it comes to the fight against inflation."

The largest contributor to the annual movement was food and non-alcoholic beverages, up 2.9%. This was followed by housing, up 2%, and alcohol and tobacco, up 5.9%.