Inflation Eases, But Underlying Price Pressures Remain Stubborn

Australia’s annual inflation rate eased to 4.0 per cent in May 2026, according to data released today by the Australian Bureau of Statistics (ABS), however underlying inflation continued to rise, highlighting ongoing cost pressures across the economy.

The Consumer Price Index (CPI) increased by 4.0 per cent over the year to May, down from 4.2 per cent in April. The moderation was largely driven by lower fuel prices, with automotive fuel costs falling 11.9 per cent during the month following the Federal Government’s temporary fuel excise reduction and softer global oil prices.

However, the ABS reported that annual Trimmed Mean inflation – the Reserve Bank’s preferred measure of underlying inflation – increased to 3.6 per cent from 3.4 per cent in April, indicating broader price pressures remain persistent.

Herron Todd White Chief Executive Officer Peter Maloney said the result presents a mixed picture for households, policymakers and markets.

“The moderation in headline inflation is encouraging, however inflation remains above the Reserve Bank’s target range and households continue to feel the impact of elevated living costs,” Mr Maloney said.

“Headline inflation improved because fuel got cheaper. Underlying inflation worsened because housing, electricity, food and services remain stubbornly expensive. That’s likely the statistic the RBA will be paying closest attention to.”

Housing remained the largest contributor to inflation, rising 6.5 per cent annually, driven by higher electricity prices, rents and new dwelling costs.

“Housing remains one of the most significant contributors to inflation, with rents, electricity and construction-related costs continuing to place pressure on household budgets,” Mr Maloney said.

Electricity costs were 21.1 per cent higher than a year ago as government energy rebates rolled off.

“The sharp increase in electricity costs demonstrates how exposed households remain to energy price movements, particularly as government support measures begin to roll off.”

Food and non-alcoholic beverages increased by 3.3 per cent annually, while transport inflation eased to 3.3 per cent from 6.6 per cent in April due to lower fuel prices.

“Many Australians will welcome the relief at the fuel bowser, however ongoing increases in housing, food and utility costs mean cost-of-living pressures remain a challenge for many households.”

Mr Maloney said the latest figures are unlikely to significantly alter property market conditions in the near term but should provide some support for confidence if inflation continues to trend lower.

“From a property market perspective, today’s result is unlikely to materially alter market conditions in the short term, however continued progress on inflation should support confidence among borrowers and lenders.”

The inflation result also reinforces the role housing supply plays in Australia’s broader inflation challenge.

“The data reinforces that Australia’s inflation challenge is increasingly linked to housing supply constraints. Increasing the supply of housing remains one of the most effective long-term measures to alleviate inflationary pressures.”

Looking ahead, Mr Maloney said the Reserve Bank is likely to remain cautious despite the improvement in headline inflation.

“The Reserve Bank will likely take some comfort from the easing in headline inflation, but the rise in underlying inflation suggests policymakers will remain cautious when considering the timing of future rate cuts.”

“Lower fuel prices have provided some welcome relief and helped moderate headline inflation, however the broader inflation picture remains more complex than a single monthly result suggests.”

“The Australian economy continues to navigate a delicate balancing act. Inflation is gradually moderating, but the pace of improvement remains slower than many households and businesses would like.”