RBA holds 4.35% — May CPI headline eases but underlying inflation rises; rate relief hopes; RBA monitoring energy price shock; Bullock confirms housing market cooling; recession risk diminished but outlook dreary
Key Questions
Why did the RBA hold the cash rate steady at 4.35%?
The RBA maintained the rate after its third hike this year, citing rising underlying inflation at 3.6% driven by services like rents and insurance despite headline CPI easing to 4.0%. Market expectations for further hikes have dropped to 15%. Bullock noted the full effects on housing will take 1-2 years.
What does the May CPI data indicate about inflation trends?
Headline inflation eased to 4.0% partly due to fuel excise effects, but the trimmed mean rose to 3.6% reflecting homegrown pressures. Inflation appears near its 5% peak with household spending down 1.1% in April.
How are rate hikes affecting the housing market and recession risks?
Bullock confirmed hikes are cooling the housing market with effects still emerging. Recession risk has diminished due to lower oil prices, but per capita GDP contraction and weak confidence point to a dreary outlook.
RBA holds 4.35% after third hike; May CPI headline eased to 4.0% but underlying inflation rose to 3.6% (trimmed mean), driven by services inflation (rents, insurance, health). Market sees 15% chance of another hike. Household spending fell 1.1% in April. ASX rallied on rate relief hopes. GDP growth slowed to 0.3%, per capita GDP falling. Two-speed economy: AI/data centre investment booming while households tighten belts. May unemployment dipped to 4.4% with 39,700 jobs added. ASX fell 0.3% on Deloitte's grim growth forecast — longest sub-2% stretch since early 90s recession.