Australia now owns one of the rich world's worst inflation problems

Australia's underlying inflation now runs faster than core prices in the US, UK, euro area, Canada and Japan, and the economists who spent summer warning the Reserve Bank are no longer being polite.

A four per cent problem the Reserve Bank did not order

The Australian Bureau of Statistics released its monthly CPI indicator for May 2026 on 24 June, and the headline number offered a sliver of relief: 4.0 per cent for the year, down from 4.2 per cent in April. 'Annual CPI inflation in May was 4.0 per cent, down from 4.2 per cent in the year to April,' said Rachael McCririck, ABS head of prices statistics.verifiedVerified Sourced from ABS media release: CPI rose 4.0% in the year to May 2026 (24 June 2026).

The relief stops there. The trimmed mean, the Reserve Bank's preferred gauge of underlying pressure, went the other way, rising from 3.4 to 3.6 per cent, its highest reading since September 2024. Housing did the heavy lifting at 6.5 per cent over the year, with food and transport each running at 3.3 per cent. Underlying momentum is the number Martin Place watches, and it is still climbing.verifiedVerified Sourced from ABS media release: CPI rose 4.0% in the year to May 2026 (24 June 2026).

How Australia stacks up against the rest of the rich world

The comparison the Reserve Bank would rather avoid starts in Washington. US consumer prices rose 4.2 per cent in the year to May, the largest twelve month increase since April 2023, according to the Bureau of Labor Statistics. But American core inflation, excluding food and energy, sat at just 2.9 per cent, a sign the US spike is mostly imported energy pain rather than home grown.verifiedVerified Sourced from US Bureau of Labor Statistics: Consumer Price Index Summary, May 2026.

Europe and the rest of the pack look better again. UK inflation held at 2.8 per cent in May with core at 2.6 per cent, Eurostat's flash estimate put euro area inflation at 2.8 per cent in June, Statistics Canada reported 3.2 per cent driven mainly by petrol, and Japan recorded 1.5 per cent with core at 1.4 per cent. Put simply: only the US headline rate beats Australia's 4.0 per cent, and no major advanced economy's core measure comes near the 3.6 per cent trimmed mean. On underlying inflation, Australia now leads the advanced world, and not in the good way.

The economists who stopped being polite

The sharpest criticism on record came when the board lifted rates in February and critics argued it should have moved harder, earlier. 'The RBA wimps out. It's scared to do its job,' said Peter Tulip, chief economist at the Centre for Independent Studies. Warren Hogan, managing director of EQ Economics, said the bank had 'all but admitted that they have not controlled inflation' and had 'failed the test of economic leadership'.

Zac Gross, a former RBA economist, pointed at the bank's own numbers: 'Today we had one hike. The RBA forecasts that even with two more hikes we will still miss the inflation target at the end of horizon (June 2028)'. Governor Michele Bullock has pushed back, arguing after the February decision: 'We don't think it's become entrenched, but it's a higher rate than we're comfortable with and that's why the board has raised today'.

Three hikes in, and the board keeps the whip hand

The cash rate started 2026 at 3.60 per cent and now sits at 4.35 per cent after three increases, the first of them February's move to 3.85 per cent; the board left it unchanged, unanimously, at the 15 and 16 June meeting. The minutes read hawkish: members noted inflation was 'still materially above the Board's target', expected roughly two years before it returns sustainably to the 2 to 3 per cent band, and said the board would do what is necessary, 'including increasing the cash rate target if necessary'. They pointed to capacity pressures at home and higher fuel and commodity prices flowing from the Middle East conflict as the forces that reignited inflation in the second half of 2025.

The road to 11 August

Wednesday 8 July is the day to watch this week: RBA assistant governor (economic) Sarah Hunter speaks at the Australian Conference of Economists in Canberra at 11.00am AEST, her first public outing since the hawkish minutes landed. After that, governor Michele Bullock addresses the Anika Foundation lunch in Sydney on 28 July before the board gathers on 10 and 11 August, with the decision due at 2.30pm AEST on Tuesday 11 August.

Markets and the major banks are genuinely split. CBA, NAB and ANZ expect the cash rate to hold at 4.35 per cent through the rest of 2026, while Westpac forecasts one more increase and views August as the most likely timing. A survey published on 3 July found 55 per cent of economists expect at least one further rise this year, and among them 62 per cent nominate August. The June quarter CPI, due before the meeting, will likely settle it.

This article is general news reporting and commentary. It is not financial advice and does not take your personal circumstances into account. Consider speaking to a licensed financial adviser before making investment decisions.