Australia's headline inflation rate fell to 4 per cent annually in May, down from 4.2 per cent in April, but the improvement is almost entirely attributable to a temporary cut to the fuel excise that the government introduced in April and extended through July.
Fuel prices fell 11.9 per cent month-on-month after the government halved the excise from 52 cents per litre to approximately 20 cents per litre, citing rising global energy costs from the Middle East conflict. The cut saves motorists around $19 on a standard 65-litre tank fill.
Strip out the fuel effect and the picture is less encouraging. The trimmed mean, the RBA's preferred measure of underlying inflation, which removes the most volatile price movements at both ends, rose from 3.4 per cent to 3.6 per cent in May. That is movement in the wrong direction for a central bank that has paused its hiking cycle but not ruled out further increases.
Housing costs continued to drive underlying pressure, rising 6.5 per cent annually. Electricity prices are up 21.1 per cent year-on-year. Both sit well outside the RBA's 2 to 3 per cent target band.
Treasurer Jim Chalmers pushed back on characterisations that the government was using the excise cut to flatter the headline figure. 'The government's efforts to cut the fuel excise are part of the story but not the whole story,' he said. He pointed to falling goods inflation and easing grocery price growth as evidence of broader disinflation.
On June 21, the government announced a one-month extension of the excise relief into July at a slightly reduced rate, keeping petrol and diesel 16 cents per litre cheaper than they would otherwise be.
'The cost and consequences of the war in the Middle East will be felt for some time,' Chalmers said.
