Inflation accelerates slightly in May
Inflation has quickened compared with April, but remains the within the Reserve Bank’s target range
Inflation accelerated slightly to 4.5% in May, giving impetus to calls for an interest cut in July.
Measured by the annual change in the consumer price index (CPI), inflation accelerated from April’s 4.4% — but remained at the midpoint of the Reserve Bank’s 3%-6% target band. Economists polled by Bloomberg expected inflation to remain flat at 4.4%.
While petrol prices continued to rise in May by 54c/l, subdued food price growth and underlying inflation countered this.
The main contributors to the inflation rate were food and non-alcoholic beverages, which contributed 0.5 of a percentage point; housing and utilities, which added 1.1 percentage points; transport, which contributed one percentage point; and miscellaneous goods and services, which added 0.9 of a percentage point.
Compared with a month ago, inflation accelerated by 0.3% as transport contributed 0.1 of a percentage point.
The annual change in CPI is the key measure used by the monetary policy committee (MPC) to set interest rates.
At its last meeting, in May 2019, the MPC adopted a more dovish tone than in previous meetings in 2019 and narrowly decided to keep the repo rate unchanged at 6.75%, with two of the five members voting for a 25-basis-point cut. Some analysts are pencilling in a cut at the next meeting, which is scheduled for July 16-18.
Last week, the Bank signalled its willingness to cut interest rates, saying inflation outcomes over the past 10 months mean policy has not been as accommodative as it could have been.