Australia’s inflation pulse continues to strengthen despite an easing in prices at the fuel bowser.

The annual trimmed mean, a measure of core inflation closely watched by the Reserve Bank, edged up to 3.6 per cent in May, from 3.4 per cent a month earlier, the Australian Bureau of Statistics reported on Wednesday.

The result was above the consensus estimate of forecasters, who had pencilled in a rise to 3.5 per cent.

Meanwhile, headline inflation fell to 4 per cent annually, from 4.2 per cent in April, confounding economist expectations of a slight increase.

The fall in the headline figure was driven by an 11.9 per cent dip in fuel prices for the month.

The mixed result will concern the Reserve Bank’s monetary policy board, which takes greater stock in the underlying figure, which excludes volatile items such as fuel and electricity prices.

The RBA has forecast the quarterly trimmed mean to hit 3.8 per cent in June.

Housing costs were the largest contributor to annual inflation, up 6.5 per cent.

They are closely watched by the central bank because they make up a large proportion of the consumer price basket and tend to be relatively sticky.

The figure reflected rising costs for electricity, new dwellings and rents, ABS head of price statistics Rachael McCririck said.

“Electricity costs are 21.1 per cent higher than 12 months ago as Commonwealth and state government rebates that reduced electricity costs for households are no longer in place,” she said.

Ahead of the release, financial markets had been pricing in about a 30 per cent chance of a rate hike at the central bank’s next meeting in August.

The RBA has already increased interest rates three times in 2026, but economists are split on whether the bank has any more in store as it balances its dual mandate of getting inflation under control and maintaining full employment.

Beneath the surface level message of the inflation report, the result was not comforting for the RBA, said Marc Jocum, senior investment strategist at ETF provider Global X.

Dairy prices rose 5.2 per cent in the 12 months to May, while there was sharp growth in prices for beef and veal (13.3 per cent) and lamb and goat (14.8 per cent) due to strong overseas demand for Australian red meat.

Strong growth in food prices suggested underlying price pressures remained sticky in parts of the economy most visible to households, Jocum said.

“It’s a bit like getting a discount at the petrol pump while your shopping trolley keeps getting more expensive,” he said.

Crucial labour market figures are due to be released on Thursday.

–AAP