RBA Watch Intensifies as Inflation Eases

• Australia’s May CPI showed further disinflation, with headline inflation slowing to 4.0% y/y from 4.2%. Trimmed mean inflation was firmer at 3.6% y/y, showing underlying price pressures remain elevated despite the broader easing trend.
• Inflation detail was mixed, with ongoing cost pass-through evident across areas including housing and market services. Softer energy prices are helping offset these pressures, adding to the case that inflation risks are gradually moving in a more favourable direction.
• Australian bond yields rallied, with the 3-year falling to 4.36% and the 10-year easing to 4.75%. Markets now price around a 30% chance of an RBA hike in August as investors balance easing inflation against persistent underlying pressures.
• RBA Deputy Governor Hauser reiterated that inflation remains the Bank’s key focus, while noting Middle East risks remain a source of uncertainty. With Brent crude near US$73/bbl, lower energy prices are providing further relief to the inflation outlook.
• Offshore, risk sentiment remained cautious as US technology equities extended recent weakness. Oil prices continued to fall toward pre-conflict levels, supporting lower global yields while the US dollar edged higher.