Interest rate hiking alert remains! In May, core inflation exceeded the upper limit target, and despite the "hawkish pause" by the Reserve Bank of Australia, the probability of an interest rate hike within the year is still as high as 67%.

Teammate of pig, Australia's core inflation rate for May remains above the upper limit of the Reserve Bank of Australia's target range, further strengthening market expectations that policymakers will maintain a hawkish stance on interest rates. Data released by the Australian Bureau of Statistics on Wednesday showed that the trimmed mean figure - the annual consumer price increase excluding volatile items - rose by 3.6% year-on-year, higher than economists' expectations of 3.5%. The RBA's inflation target is in the range of 2% to 3%, with a policy anchor direction of 2.5%, the midpoint of the range. The core index rose by 0.4% in May, higher than the forecasted 0.3%; the overall Consumer Price Index (CPI) increased by 4% year-on-year, lower than economists' prediction of 4.3%. Following the data release, the Australian dollar and three-year government bond yields both rose slightly. In response to higher interest rates and the negative impact of the Iran conflict, economic activity in Australia has been slowing down: the unemployment rate climbed to a new high in four and a half years in April, and household spending has also weakened. Despite the peace talks between the US and Iran and the continued opening of the Strait of Hormuz, oil prices have fallen, but the process remains fragile and the recovery of oil flow may take time. To address the reemergence of inflation, the Reserve Bank of Australia raised interest rates at each of its first three meetings this year, then paused two weeks ago and kept rates at 4.35%. The currency markets currently predict a two-thirds chance of another rate hike by December, and the central bank remains open to further action. The RBA expects inflation to remain at a high level. The National Australia Bank (NAB) stated that there is still significant uncertainty in the data for the next few months due to the sensitivity of the overall Consumer Price Index to fuel prices. According to the NAB, for every 10% drop in fuel prices, the overall data will decrease by 30-40 basis points. The bank believes that the CPI is "comfortably below" the RBA's May forecast of a 4.8% year-on-year growth rate calculated quarterly.