Cooling Australia’s inflation in May boosts bets on RBA rate cut in July

In May, Australia’s inflation slowed faster than expected, nearing the bottom of the Reserve Bank’s (RBA) 2–3% target range. As reported by Bloomberg, this has strengthened the case for a potential rate cut as early as July.

According to the Australian Bureau of Statistics, the consumer price index rose 2.1% last month, coming in below the expected 2.3%. The figure has now stayed within the central bank’s target range for 10 months. Meanwhile, the trimmed mean measure, excluding volatile price components, slowed from 2.8% to 2.4%, hitting its lowest level since November 2021.

Markets are now pricing in a nearly 90% probability that the RBA will cut rates at its July 7–8 meeting. According to Ivy Yu of Oxford Economics Australia, the central bank is finally getting inflation under control, with recent data paving the way for further monetary easing. Last month, the regulator already trimmed borrowing costs to 3.85%. However, in her post-decision remarks, RBA Governor Michele Bullock highlighted increasing economic growth risks stemming from trade tensions and geopolitical uncertainty.