Latest inflation figures reveal 5.6 per cent increase in last 12 months

The latest inflation figures give a telling sign about the future of Australia’s economy.

In a sign Australia’s economy is a step closer to normal, inflation retreated to 5.6 per cent in the twelve months to May, a sharper than expected decline from the April figures and well below the December peak.

The smallest increase to inflation in 13 months, the latest CPI figures from the Australian Bureau of Statistics shows the most significant price rises were housing (up 8.4 per cent in the last year), food and non-alcoholic beverages (up 7.9 per cent) and furnishings, household equipment and services group (up six per cent).

While the rate is inflation is still higher than economists, the government, and the Reserve Bank would like, it’s trending downwards – closer to the two to three per cent target of the central bank.

But persistent price pressures will likely maintain pressure on the RBA in the months ahead.

The annual CPI increase in May was the smallest increase since April last year. Picture: NCA NewsWire / Naomi Jellicoe

Underlying inflation - the rate that excludes volatile price changes like holiday travel, fuel, and fruit and vegetables - shows the decline is more modest, down to 6.4 per cent in May from last month’s 6.5 per cent rate.

Electricity prices were another major source of inflationary pressures, as Russia’s war in Ukraine continues. Prices rose by 14.1 per cent over the last 12 months, with more price rises expected in June.

Head of prices statistics, Michelle Marquardt, said the 5.6 per cent figure was the smallest increase since April last year.

“While prices have kept rising for most goods and services, many increases were smaller than we have seen in recent months,” she said.

The latest figures show rent increases were up again, up 6.3 per cent in the year to May, compared to 6.1 per cent last month.

While the RBA closely considers the quarterly CPI figures in gauging whether inflationary pressures have eased, the monthly indicators factor in the bank’’s interest rate decisions.