A private gauge of Australian inflation showed a further sharp easing in price pressures in May, suggesting policy makers still had scope to cut interest rates if needed.
The TD Securities-Melbourne Institute monthly inflation gauge fell 0.3 per cent in May, after an unchanged reading in April.
Visit this website tomorrow at 2.30 pm, AEST, for the RBA's interest rate decision
Annual inflation slowed to 1.5 per cent in May, from 2.1 per cent in April. That was the lowest annual pace since the series began and beneath the Reserve Bank of Australia's (RBA) long-term target band of 2 to 3 per cent.
The data also showed a fall in core measures of inflation in May, which should be a comfort to the central bank after stubbornly high readings in the first quarter.
Yet analysts and investors see little chance of the RBA cutting interest rates again at its monthly policy meeting on Tuesday, with recent commentary from the officials suggesting they were content to wait and assess the impact of past easing. The key cash rate has already been cut by a massive 425 basis points to a record low of 3.0 per cent.
Annette Beacher, a senior strategist at TD, argued the slowdown in inflation meant real interest rates were rising at a time when the economy was slipping into recession.
"The low inflation outcome and now genuine threat of deflation should be a timely reminder for the RBA board that interest rates are too high and rate cuts should be delivered," said Beacher.
Contributing most to the overall change in the price index in May were falls for rental accommodation, holiday travel and accommodation, and alcoholic drinks. Rents fell by around 1.5 per cent in May, to be down 4.5 per cent sine March.
The price of fuel was little changed in May, but was down 20 per cent from a year ago.
Price rises were seen for fruit and vegetables in May, along with books, newspapers and magazines, and household supplies.
The TD-MI's measure of underlying inflation dipped 0.2 per cent in May, pulling the annual pace down to 1.9 per cent from 2.4 per cent in March.
Its measure of core inflation, excluding volatile items like fuel and fruit, dropped 0.3 per cent in May. The annual pace eased to 2.6 per cent, from 3.2 per cent the month before.
That was promising as the official measure of underlying inflation had been running at a stubbornly high 4.1 per cent in the first quarter.
The official measure of annual consumer price inflation (CPI) had moderated sharply to 2.5 per cent last quarter, and looked like slowing further this quarter.
Don Harding from the Melbourne Institute said that, based on the May inflation gauge, the official measure of CPI would likely rise by just 0.1 per cent in the second quarter.
If so, annual inflation would slow to only 1.1 per cent, well below the RBA's target band.
Reuters
