TD Securities forecasts May headline inflation at 4.2%, below consensus, reinforcing expectations for an RBA hold in August.
Australian May headline inflation is forecast to slow to 4.2% year-on-year from April’s 4.6%, below the 4.3% consensus, according to a note from TD Securities. The deceleration is driven by lower transport and recreational prices, with fuel costs declining month-on-month and domestic travel demand easing in May.
The expected print would mark the second consecutive monthly slowdown, strengthening the case for the Reserve Bank of Australia to pause rate hikes in August. The RBA has raised rates at each of its three meetings this year, but softer inflation data and easing price pressures in the June flash composite PMI support a hold.
TD Securities also noted that even an upside inflation surprise in May would be unlikely to shift the RBA’s stance, reducing two-way risk for rate markets. However, underlying services and non-tradables inflation will remain key for the central bank’s medium-term policy path.