TD Securities strategists note that Australia’s May headline CPI slowed to 4.0% year-on-year, below consensus and their own forecast, largely on softer transport and fuel costs. They argue this keeps the Reserve Bank of Australia alert to rising pressures and does not reduce the odds of an August rate hike. Also they expect Australian employment to rebound by 40k in May, versus a 30k consensus, after April’s negative print linked to survey changes and holidays. They see the unemployment rate edging down to 4.4% but warn that weak consumer sentiment and lower capacity utilization could push unemployment higher in coming months.

Jobs rebound and sticky inflation

"Australia headline CPI missed to the downside in May, at 4.0% y/y (cons: 4.3%, TD: 4.2%, prior: 4.2%). Trimmed mean inflation (i.e., core inflation), however, edged higher to 3.6% y/y (cons: 3.5%, prior: 3.4%). The downside miss on headline could be attributed to lower transport cost which rose by 3.3% y/y (prior: 6.6%) as fuel prices eased to 7.7% y/y (prior: 18.6%). "

"Regarding the RBA, it's trimmed mean that holds more weight, this is what the RBA looks at, and the m/m trend in trimmed is rising, which is not a great sign. The outcome clearly puts the RBA on alert to rising pressures, not sure it locks in an Aug hike, but it clearly doesn't lower the odds."

"We expect a rebound in jobs to +40k jobs (cons: 30k) after the negative jobs outturn at -18.6k last month. Apr'26 marked the ABS's new LFS collection system and the LFS was also collected over the long Easter holidays which may result in some temporal distortions. "

"Given our forecast, we expect unemployment rate to edge lower to 4.4%. Risk to our view is that consumer sentiment is currently in the dumps and lower capacity utilization points to higher u/e rate over coming months."

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