Prices rose by 4% in the 12 months to May 2024, new figures from theshow.
Inflation figures for May are the highest recorded in the last six months, and the third consecutive month where an increase has been observed.
It comes one month after the Federal Government projected that inflation could drop to below 3% by the end of the year.
What is inflation?
Inflation measures price growth. It uses prices in around 90 categories (e.g. fruit, rent, furniture) to measure this.
Today’s figure means everyday goods and services cost 4% more in May 2024 than they did in May 2023.
While the rate of inflation has increased this year, it has been gradually trending down since it peaked in December 2022.
Wednesday’s figures
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Alcohol and tobacco, housing, and transport were among the items with the largest price increases over the last 12 months.
The ABS also calculates a ‘seasonally adjusted’ inflation figure. This number excludes categories subject to fluctuating prices throughout the year like petrol, seasonal produce, and holiday travel.
The seasonally adjusted figure rose to 4% in the year to May, slightly more than March and April.
Reserve Bank
Inflation is a key consideration for the(RBA) when it determines changes to the cash rate — the interest it charges commercial banks for short-term loans. This rate influences the cost of borrowing across the economy, so changes to the cash rate are often called changes to ‘interest rates’.
The RBA wants inflation to get to 2-3%. To do this, it has increased interest rates several times since 2022. The idea is that this takes money out of circulation, taking pressure off prices and reducing inflation.
It has chosen to keep the cash rate unchanged at 4.35% over its last five meetings, as inflation has continued to moderate.
The RBA makes its next decision on the cash rate in early August. In its last update, the the RBA said it would “do what is necessary” to return inflation to its target range of 2-3%.
