The May Monthly CPI Indicator points to a continued moderation in domestic inflation. Headline CPI rose by 2.1% over the 12 months to May, down from 2.4% in April. Trimmed mean inflation, the RBA’s preferred underlying measure, also softened to 2.4%, placing it comfortably within the central bank’s 2–3% target range. The annual trimmed mean inflation rate is now at its lowest level since November 2021.
Key drivers of the May CPI figures are below:
Markets are currently pricing in a 90% probability of a 25 basis point cash rate cut in July, with expectations of two to three cuts by year-end. Such a move would offer timely support for household sentiment and business financing conditions, particularly given the ongoing softness in broader economic activity. However, the RBA may opt to delay any policy action until the release of the next quarterly CPI data at the end of July, which is its preferred indicator of inflation.
Globally, the macroenvironment remains fragile. The recent escalation of conflict between Iran and Israel has raised geopolitical risk across the Middle East and contributed to volatility in energy markets. Oil prices have fluctuated, and the potential for disruption to global supply chains or shipping routes remains elevated. A sustained rise in energy prices could feed through to global inflation, complicating central banks’ ability to ease policy and potentially reintroducing volatility into financial markets. Although Australia is somewhat insulated from the direct impacts of conflict, any spike in transport or input costs could push up local CPI prints and delay the RBA’s easing timeline.
Source: Australian Bureau of Statistics, Consumer Price Index, Australia, 25 June 2025
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