CPI Comes in Soft

• Australia’s May monthly CPI indicator undershot expectations, easing to 2.1% y/y (vs 2.3–2.4% consensus), the softest reading in the series so far.
• Core inflation also cooled: the trimmed mean dropped to 2.4% y/y, and CPI excluding volatile items and holiday travel fell to 2.7% y/y.
• The key drag was a sharp reversal in travel prices (-7% m/m), following seasonal strength around Easter. April’s surprise lift in new dwelling prices didn’t persist as price growth was flat in May.
• With this print, the full suite of key data is now in ahead of the RBA’s July 8 meeting.
• Markets now price a 93% chance of a rate cut in July, with 23bps priced for the next meeting (up from 21bps pre-CPI), and 43bps by August (up from 40bps).