The worst thing I could do is sugarcoat the May CPI by saying you can’t trust just one month’s figures, but you can’t! In fact, the headline inflation reading did fall, rising by only 0.1%, but this a number that’s less important to the people who decide to cut or raise interest rates next month on July 12.
I think the RBA will give us one more month to show our economy is reacting to 13 rate rises. What happens could be determined by a tale of two groups of Aussies. More on that in a moment.
This is how the CBA’s Stephen Wu saw the data: “The Reserve Bank’s (RBA) closely-watched measure of underlying or core inflation – the trimmed mean CPI – accelerated for a fourth straight month to an annual rate of 4.4% in May from 4.1% in April. Another measure – the CPI excluding volatile items and holiday travel - dipped to 4.0% from 4.1%.”
Optimist might say that it wasn’t all bad news, and the AFR’s Michael Read ignored the likelihood of a July move, reporting that “investors say there is now a one-in-three chance of an August interest rate rise after inflation accelerated to its highest rate in six months…”
An optimist would say that means two-thirds of experts on rates say ‘No’ to an August rate rise. A realist would be blunter and conclude that if the economic data numbers don’t start dropping, then rates will be rising.
Let’s look at the upcoming timetable of terror, when we have to see numbers from the Australian Bureau of Statistics either help or hurt those suffering in the interest rate debt trap. The RBA meeting for August is on the 12th of that month, so what statistical releases could stop a rate rise? Check these out:

1. July 5: Monthly Household Spending Indicator needs to show spending is dropping big time.
2. July 18: Unemployment needs to spike up from 4%.
3. July 30: Retail sales have to be negative.
4. July 31: June Quarter and monthly CPIs have to indicate prices are starting to slide.

Sure, there are other numbers like building activity, business and consumer confidence, job vacancies and so on but the big four readings above will determine whether the RBA board can gamble that the current uptick in inflation is the last hurrah for price rises before they start to drop.
This is Treasurer Jim Chalmers’ story and he’s sticking to it, but he knows his reputation and that of the Government will cop it if another rate rise happens. Already economists are saying the federal budget, and each state budget, haven’t helped by giving tax cuts, and excessive government spending at all levels isn’t helping the RBA’s attack on inflation.
Dr Chalmers will have to hope that two groups of Aussies — young people with no debt (and spoiling parents) and baby boomers with no debt, can stop living the life of Riley. Those in the high interest rate/home loan debt trap have to be feeling the pinch from 13 rate rises but those not weighed down by loans have been virtually untouched by the inflation-fighting RBA.
As a consequence of these inflation revelations on Wednesday, players in the futures market priced out any chance of a cut in the 4.35% cash rate this year! Meanwhile, the good news was that the Australian dollar climbed 0.4% to US66.78 cents after the release of the inflation data. A rising dollar does help reduce inflation driven by imports.
But that’s the only good news out of that disastrous data drop yesterday!