Australia's inflation has moved further in the wrong direction, pouring cold water over the case for near-term interest rate cuts and reviving the possibility of another hike, signalling more pain for borrowers.
The monthly consumer price index rose four per cent over the 12 months to May, above consensus forecasts of 3.8 per cent and up from the 3.6 per cent increase in April.
Holiday travel and accommodation inflation rose annually for the first time since October last year, with price growth still consistently strong across rents, new dwellings, insurance and petrol.
Yet it was the trimmed mean rising to 4.4 per cent from 4.1 per cent in April that sounded alarm bells, with Betashares chief economist David Bassanese warning the May numbers would put "huge pressure" on the Reserve Bank of Australia.
"Today's May monthly consumer price index report can only be described as a 'shocker' and places huge pressure on the Reserve Bank to raise interest rates in August," he wrote in a note.
The monthly consumer index is not as comprehensive as the quarterly update, which is still considered the principal measure of inflation and the June edition will be crucial ahead of the next interest rate meeting in August.
A central bank assistant governor reiterated the bank's attentiveness to upside inflation risks in a speech delivered before the monthly inflation readout and confirmed nothing would be ruled in or out in relation to its next interest rate move.
Speaking to the Australian Banking Association, Chris Kent highlighted the "painful squeeze" felt by many but canvassed the weightier burden of higher interest rates on indebted households, with businesses less affected.
While the annual inflation rate ticked higher last month, Market Economics managing director Stephen Koukoulas said that was because of "an utterly wicked base effect" that dropped out in May 2023.
The economist expected the central bank to stay on hold as the economy was clearly slowing in response to higher interest rates.
"Of course we'd all love inflation to be in the target today and yes, a further hike would deliver it in spades," he said.
"But at what cost to business and jobs?"
Treasurer Jim Chalmers said inflation could "zig and zag on its way down", as seen in other countries.
"We saw this with a tick-up in inflation in Canada overnight and it also rose in the United States in February and March before heading back down," he said.
Shadow treasurer Angus Taylor said inflation was moving in the wrong direction and Australians were paying a high price.
"It's a true indictment on a government that has completely failed," he told reporters in Canberra.
