Australian consumer prices fell modestly last month, doing little to dispel the notion held by many that a further rate cut from the RBA is likely in the months ahead.
The Melbourne Institute (MI) inflation gauge fell by 0.2% in May, leaving the annual increase at just 1.0%.
It was the slowest annual increase in the history of the survey, dating back to 2002.
According to the MI, price declines for fruit and vegetables (-4.1 per cent), non-durable household products (-2.2 per cent) and holiday travel and accommodation (-1.0 per cent) overrode increases in automotive fuel (+2.4 per cent) and insurance and financial services (+0.7 per cent) during the month.
Excluding volatile items such as automotive fuel, fruit and vegetables, the groups core inflation measure fell 0.2% from April, leaving the annual increase at just 1.5%, a level akin to the core inflation reading released by the ABS in its official CPI release in April.
The MI reports that tradable inflation, that determined by international factors, fell by 0.5% while non-tradable inflation, that determined by domestic factors, was unchanged.
According to the Melbourne Institute, the gauge is designed to provide a timely and accurate monthly measure of inflation in Australia using methodology used by the ABS to calculate its quarterly consumer price index.
Unlike the official ABS release, the MI index is more timely, looking at price movements each month rather than for each quarter.
Based on the trend in the survey, it suggests that disinflationary pressures seen in the official ABS remain in place, or are perhaps intensifying, at present.
In May, following the release of the ABS survey in late April, the RBA cut interest rates to a record-low level of just 1.75%, almost entirely due to the weak outlook for inflation.
The bank followed up that move by slashing its core inflation forecasts for the period ahead, predicting that it was unlikely to move back into the RBA’s 2-3% medium-term inflation target until at least the middle of 2018.
Along with record-low wage growth seen in the ABS wage price index released in mid-May, the sharp reduction in the bank’s inflation forecasts saw most analysts predict that a further rate cut to 1.5%, or lower, was likely to arrive in the second half of 2016.
Today’s report will do little to sway that sentiment, even with the release of last weeks bumper March quarter GDP report which revealed the Australian economy grew 3.1% from the same quarter a year earlier.