TD Securities’ Global Strategy Team expects Australian headline Consumer Price Index (CPI) to ease to 4.2% year-on-year in May, helped by lower transport and recreational prices. Even if inflation surprises higher, they believe the Reserve Bank of Australia (RBA) will likely remain on hold in August. Softer new orders and easing price pressures in the Australia Flash Composite Purchasing Managers' Index (PMI) also support a steady cash rate.

Easing inflation supports steady RBA policy

"We expect headline CPI to ease further in May to 4.2% y/y (cons: 4.3%) from 4.6% last month."

"Transport prices are likely lower on a m/m basis due to a drop in fuel prices while recreational prices could reverse lower as May is a typical lull month for domestic travel."

"Even if inflation surprises to the upside, we believe the RBA is inclined to be on the sidelines in Aug as we flag in our earlier note."

"The drop in new orders and slowing in inflation pressures in S&P's Australia Flash Composite PMI for June adds support to the RBA keeping the cash rate on hold at its August meeting."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)