Australia’s consumer price index inflation up 5.6 per cent in May, down from April’s 6.8 per cent

Inflation is still stubbornly high, fueling fears of further rate hikes that could trigger a recession.

The consumer price index rose 5.6 percent in May, up from an annual rate of 6.8 percent in April, but still well above the Reserve Bank’s target of 2 to 3 percent.

Prices of electricity and some basic foodstuffs rose by double digits over the year, but gasoline prices have actually fallen compared to the same month in 2022.

Treasurer Jim Chalmers said inflation was moderating after reaching levels last year not seen since 1990.

“We expect it to stay higher than we’d like, longer than we’d like, but it’s still moving in the right direction,” he told the Property Council of Australia in Darwin on Wednesday.

The big banks all expect the Reserve Bank of Australia to raise interest rates again next week, which would be the 13th hike since May 2022.

The 12 hikes so far in just 13 months marked the most aggressive pace of monetary tightening since 1989, with some economists worried the hikes would push Australia into recession.

The RBA does not expect inflation to fall to the three percent target until June 2025.

Electricity prices rose 14.1 percent over the year, according to data from the Australian Bureau of Statistics released on Wednesday.

Food prices are still rising in double digits, with bread and grain prices rising by 12.8 percent and the cost of dairy products rising by 15.1 percent.

The costs for takeaway meals and eating out increased by 7.7 percent.

Housing costs – rent, mortgages and utility bills – rose 8.4 percent.

But as a sign of hope, fruit and vegetable prices only rose by 2.7 percent over the year.

Gasoline prices surprisingly fell by eight percent over the year, with crude oil prices moderating since the early months of the Russian invasion of Ukraine.

In April, fuel prices rose at an annual rate of 9.5 percent, demonstrating the volatility of global commodity markets more than a year after sanctions were imposed on Vladimir Putin’s regime.

Vacation and travel expenses rose 7.3 percent annually in May, but this was an improvement from April’s 11.9 percent increase.

Costs for insurance and financial services increased by 7.8 percent from 6.7 percent.

The big banks all expect the Reserve Bank of Australia to raise interest rates again next week, which would be its 13th hike since May 2022 (pictured is Governor Philip Lowe with his deputy and possible successor Michele Bullock)

Dr. Chalmers said on Wednesday the budget surplus for 2022-23 would exceed the $4.2 billion figure announced in May, thanks to higher royalties from coal prices.

“So I’m happy to say that two days into the end of the financial year, we’re still on track,” he said.

In fact, we are in a significantly better position than we predicted.

“Today I can reveal that we expect the surplus in May to be larger than forecast.”

The aggressive rate hikes threaten to trigger the first rate-driven recession since 1991, just three years after summer covid lockdowns and wildfires caused the economy to contract for two quarters in a row.

But Dr Chalmers argued that a larger budget surplus, the first since 2007 based on a temporary spike in coal and iron ore prices, would help to reduce inflation.

“It means doing what we set out to do – restore our buffers – and get more energy out of the economy, just as we need to fight inflation,” he said.