An interest rate cut in two weeks now appears highly likely, as Australia’s underlying inflation has dropped to its lowest level in three-and-a-half years.
According to data from the Australian Bureau of Statistics, the monthly consumer price index (CPI) fell to 2.1% in May, down from 2.4% in April—well below the market forecast of 2.3% and near the bottom of the Reserve Bank of Australia’s (RBA) target range.
Core inflation, or the trimmed mean, also eased from 2.8% to 2.4%, its lowest point since November 2021, signaling further cooling in price pressures.
Though monthly figures carry less weight than quarterly ones, the RBA is scheduled to make its next interest rate decision on July 8, before new quarterly data is released.
With inflation falling faster than expected and labor market conditions weakening, economists believe the RBA is likely to cut the cash rate for the third time this year.
eToro market analyst Josh Gilbert noted that the 2.1% reading may be the “final piece of the puzzle” for the RBA to move forward with a rate cut.
Before the data release, investors had already priced in an 89% chance of a cut from 3.85% to 3.60%—a likelihood now further strengthened by the softer inflation print.
Gilbert added that falling electricity prices and slower rental growth point to easing cost-of-living pressures, a key factor in the central bank’s decision-making.
