The Australian CPI report for May surprised market expectations, with headline inflation rising from 3.6% to 4.0% y/y in May versus consensus of 3.8%.
Components of the report indicated that the gains were driven by increases in housing, transportation, and tobacco prices.
Link to Australian CPI report for May 2024
Core inflation, which excludes volatile commodity prices and holiday travel, fell from 4.1% in April to 4.0% in May.
Market reactions
Australian dollar against major currencies: 5 minutes
Overlay of the Australian dollar against major currencies Chart by TradingView
Australian currency pairs were mostly sideways ahead of the Land Down Under inflation figures, with a brief dip about an hour before the numbers were printed.
The stronger-than-expected results sparked a sharp rally across the board, with market analysts predicting that accelerating price pressures would reduce the odds of the Reserve Bank of Australia (RBA) remaining idle during its next policy meeting.
The Australian dollar made its biggest advance against the Japanese yen, as traders remained wary of interventionist moves in the yen, while continuing to gradually rise two hours after the report was released.
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