May Inflation Surprise Puts August Rate Rise Back in Play

Australia's headline CPI fell to 4% in May, but a surprise jump in the trimmed mean has economists predicting another RBA rate hike on 12 August.

Australia's May inflation figures delivered a split verdict for borrowers on 24 June 2026: headline consumer price growth continued to slow, but the Reserve Bank of Australia's preferred measure of underlying inflation rose unexpectedly — and the immediate response from economists was to sharpen their August rate hike forecasts.

The Australian Bureau of Statistics data showed headline CPI fell to 4.0% on a year-on-year basis in May. On the surface that looks like progress toward the RBA's 2.5% target and supports the case for patience. But the detail underneath the headline tells a different story, and that detail is what the RBA will be examining most closely when its board meets on 12 August.

Why cheaper fuel is masking persistent pressure

The fall in headline inflation was driven almost entirely by petrol. MPA Australia reports that ABS data showed automotive fuel prices fell 11.9% in May, following a 7% drop in April — a compound effect of lower global oil prices and the halving of the federal fuel excise that took effect on 1 April. That fuel relief is real, but it masks what is happening across the rest of the economy.

Annual inflation for food and non-alcoholic beverages rose to 3.3% in May, up from 2.8% in April. Meals out and takeaway climbed 4% over the year. Housing remained one of the most persistent contributors to underlying pressure: annual housing inflation ran at 6.5% in the 12 months to May, and electricity costs were 21.1% higher than a year ago — an increase partly explained by the absence of the government rebates that had previously offset household power bills.

The trimmed mean — the measure that smooths out the most volatile price movements to give the RBA a cleaner read on underlying momentum — rose in May. That single result changed the tone of economic commentary almost immediately, with senior economists from two of Australia's largest advisory firms calling it a setback.

Brendan Rynne, chief economist at KPMG Australia, was direct: "Unfortunately, today's data adds to the case for a rate hike. Frustratingly we are seeing this rise which will give the RBA the justification it needs to increase rates, most likely in August."

Stephen Smith, a partner at Deloitte Access Economics in Sydney, took a more measured but equally cautious line, urging the central bank to "remain vigilant" because inflation by any measure remains well above target. He noted that the temporary fuel excise cut had masked the true extent of persistent price pressures and was "delaying some of the price growth pass-through to other sectors."

Treasurer Jim Chalmers welcomed the headline result at Parliament House, calling it "much better than the market expected, much better than forecast." But he acknowledged "there are still inflationary pressures in our economy, that's reflected in the underlying measure" — framing that aligns closely with the RBA's own cautious stance.

Where the Big Four banks sit on August

The spread of bank forecasts for the 12 August decision is unusually wide, and where you sit on that spectrum has direct implications for every variable-rate borrower.

Westpac is the most hawkish of the major banks, forecasting two further 25-basis-point increases — at the August and September meetings — which would lift the cash rate from its current 4.35% to 4.85%. Westpac analysts described May's data as reinforcing the view that "inflation remains too high and that a period of slower growth will be needed to return inflation to target." They also flagged wage cost pressures in the second half of the year, particularly across market services, as a further risk.

NAB occupies the middle ground, with one 25-basis-point hike pencilled in for August that would take the cash rate to 4.60%.

Commonwealth Bank and ANZ are at the other end of the spectrum, forecasting no further moves and expecting the cash rate to hold at 4.35% through the balance of the year.

None of these forecasts are certainties. Before the August meeting, the board will see additional employment and retail figures that could tighten or loosen the case for action. But the trimmed mean overshoot today ensures the August debate will be a live one.

What this means if you're on a variable rate

If you are currently on a variable rate — or rolling off a fixed term over the next few months — the 12 August decision is a date to keep front of mind. Even a single 25-basis-point move adds meaningfully to monthly repayments on larger loan balances, and the risk of two consecutive moves between now and October has increased since today's data.

This is also a practical moment to review whether your current rate is still competitive. Lenders adjust rates independently of the RBA, and the difference between what major lenders offer new customers and what they charge long-standing borrowers can be substantial. Many borrowers who absorbed multiple rate rises in 2026 without reviewing their loan may find better rates are available to them right now.

If refinancing is on your radar, the [refinance savings calculator](/calculators/refinance-savings) can give you a quick read on what switching could save each month. The [borrowing power calculator](/calculators/borrowing-power) is worth checking if you want to understand how your capacity has shifted across this rate cycle before you commit to anything.

The underlying message from today's data is clear: inflation is not beaten, and the August rate decision is genuinely open. Speaking with a broker ahead of 12 August gives you time to understand your options — and to act if another hike is confirmed.

[MPA Australia's full coverage of the May inflation data is available here.](https://www.mpamag.com/au/news/general/inflation-overshoot-raises-rba-rate-hike-fears/580061)