Australia’s core inflation rate rose unexpectedly in May, complicating the Reserve Bank of Australia’s (RBA) efforts to contain price pressures despite a recent stabilization in headline inflation. The Australian Bureau of Statistics (ABS) reported that the RBA’s preferred trimmed mean measure of inflation—often regarded as the most accurate gauge of underlying price trends—increased to 3.6 percent over the year to May, up from 3.4 percent in April. This marks the highest level for core inflation in nearly two years.

The upward surprise in core inflation has renewed calls among economists for the RBA to consider further interest rate hikes following its decision to hold the cash rate steady at 4.35 percent earlier this month. Brendan Ryne, chief economist at KPMG, described another rate increase as “guaranteed,” highlighting the trimmed mean’s rise as a compelling reason for the monetary policy board to act at its August meeting.

“The data today strengthens the case for a rate hike. Core inflation remains elevated and continues to rise, which is likely to prompt the RBA to tighten policy further,” Ryne said.

The government’s decision to temporarily cut the fuel excise tax has contributed to a decline in headline inflation, which dropped from 4.2 percent to 4.0 percent in May. Automotive fuel prices fell 11.9 percent in the month but remained 7.7 percent higher compared to the same period last year. Treasurer Jim Chalmers attributed the headline inflation easing in part to this temporary relief, which he said helps mitigate cost-of-living pressures amid ongoing global uncertainties.

“We are realistic about inflation’s trajectory and not complacent, but a decline in headline inflation is preferable to the alternative,” Chalmers said, noting that inflation in Australia remains relatively high compared to other developed countries. By comparison, inflation rates in Britain, Canada, Japan, and Germany stood at 2.8 percent, 3.2 percent, 1.5 percent, and 2.6 percent, respectively.

Despite the recent moderation, Australia’s headline inflation had been steadily rising for nine consecutive months prior to the past two months’ decreases. Stephen Smith, partner at Deloitte Access Economics, warned that the temporary fuel excise cut has concealed ongoing inflationary pressures, which are expected to resurface once the relief measure begins to phase out in July.

“The government’s fuel tax relief has delayed some inflationary pass-through to other sectors,” Smith explained. “As this policy is unwound, inflation pressures are likely to become more visible.”

The ABS data also highlighted housing-related costs as key contributors to inflation, with electricity prices climbing 21.1 percent over the year to May. This increase partly reflects the expiration of various state and federal electricity rebates. Meanwhile, the Australian Energy Regulator (AER) reported that the number of electricity customers entering hardship programs reached a five-year peak in the first quarter of 2026, with 67,860 customers enrolled.

Looking ahead, both inflation data and the forthcoming unemployment figures will be critical factors for the RBA’s decision-making at its upcoming policy meetings, with market expectations tilting toward at least one additional rate rise later this year.