Inflation Falls to Pre-War Levels in Australia

Published July 31, 2026 at 9:02 PM UTC

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Key Points

Australia's inflation rate decreased to 4.0% in May 2026, the lowest in three months.
Underlying inflation rose by 3.6% year-on-year in May, the fastest pace since September 2024.
Governor Michele Bullock attributed the decline to three rate hikes since early 2026.
The RBA remains committed to restoring price stability despite ongoing challenges.

Background History

In late 2025, Australia experienced a surge in inflation due to supply shocks and rising energy costs. In response, the Reserve Bank of Australia implemented three rate hikes in early 2026 to curb domestic price pressures and limit the impact of higher oil and commodity costs. These measures have contributed to the recent decline in the inflation rate.

Australia's inflation rate has decreased to 4.0% in May 2026, marking the lowest level in three months and returning to pre-war levels. This decline is attributed to moderating headline inflation, though it remains above the Reserve Bank of Australia's (RBA) target range of 2–3%. Underlying inflation, as measured by the trimmed mean Consumer Price Index (CPI), rose by 3.6% year-on-year in May, the fastest pace since September 2024. Governor Michele Bullock noted that three rate hikes since early 2026 have curbed domestic price pressures and limited spillovers from higher oil and commodity costs. The central bank has reiterated its commitment to restoring price stability, emphasizing that while inflation accelerated in late 2025 amid supply shocks and energy costs, tighter policy should gradually ease pressures.