Cooling price pressure boosts July rate cut chances

Inflation eased further last month, bolstering the chance of an interest rate cut for households saddled with mortgages next month.

The monthly consumer price index (CPI) indicator rose 2.1% during the year to May 2025, down from 2.4% in April, according to the latest data from the Australian Bureau of Statistics (ABS).

Annual trimmed mean inflation, which was the Reserve Bank of Australia’s (RBA) preferred measure to look at, rose 2.4% in May, down from 2.8% in April.

ABS head of prices statistics Michelle Marquardt said it was the lowest annual trimmed mean inflation rate since November 2021.

The new figures show Australia was holding inflation within the RBA’s inflation target range of 2-3% in a shift that may influence the central bank’s board as it weighs up whether to hold or cut interest rates at its next meeting on July 8.

Financial markets have put the chance of a 0.25% interest rate cut in July at about 89%, according to the ASX.

The RBA has already cut interest rates by 0.25% in February and May this year, with the cash rate now sitting at 3.85%.

REA Group senior economist Anne Flaherty said the latest monthly CPI figures showed inflation was continuing to ease.

“We saw both headline and underlying inflation come down over the month and that’s good news for households, but there has to be some caution in reading too much into these results because they are only a monthly indicator,” she said.

“They’re not the official CPI stats, but the fact that the indicator is showing signs that inflation is easing is pointing to an increased likelihood that where we will see a rate cut in July.

“I think there’s a pretty strong chance we will see a cut in July, and if not July, I think a good chance that it would be in August.”

Slowing inflation has been a welcome change for households, who have seen the cost of living rise faster than wages over the past five years.

Australia’s cost of living had increased 21% during the five years to March 2025, while wages had only grown by 16%, Ms Flaherty said.

Groceries and housing were the greatest contributors to the shift in the latest figures, according to the ABS.

Annual inflation for food and non-alcoholic beverages rose 2.9% in May, down from 3.1% in April.

Annual housing inflation rose 2% last month, down from 2.2% in April.

Taking a closer look at housing, rents rose 4.5% in the 12 months to May, down from 5% in April, marking the lowest annual growth in rental prices since December 2022.

New home prices rose 0.8%, down from a 1.2% rise in April, representing the smallest annual growth since April 2021, as project home builders offered discounts and promotional offers to entice business.

Originally published on Mortgage Choice as Cooling price pressure boosts July rate cut chances.

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