A May headline print at or below 4.2% would be the second consecutive monthly deceleration and would extend the run of data supporting the case for the RBA to pause in August after raising rates at each of its three meetings in 2026. The more significant read-through is TD’s explicit view that even an upside inflation surprise would not shift the RBA off the sidelines in August, a judgment that substantially reduces the two-way risk around the release for rate markets. The softening in the June flash composite PMI, with new orders falling and price pressures easing, adds a forward-looking dimension that reinforces the hold case beyond the immediate data point. Fuel price dynamics remain the key distortion: a monthly decline in May flatters the headline, but the underlying trajectory of domestic services and non-tradables inflation will be the more closely watched signal for the RBA’s medium-term policy path.
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TD Securities forecasts Australian May headline CPI easing to 4.2%, below the 4.3% consensus, with the RBA expected to hold in August even if inflation surprises higher.
Summary:
- TD Securities forecasts Australian May headline CPI falling to 4.2% year-on-year from 4.6% in April, below the market consensus of 4.3%, driven by lower transport and recreational prices, per the bank’s note
- Transport prices are expected to decline month-on-month on lower fuel costs, while recreational prices are seen easing as May typically represents a lull period for domestic travel, according to TD
- TD said the RBA is inclined to remain on hold at its August meeting even if May inflation surprises to the upside, citing an earlier note flagging the bank’s steady-rate bias
- Softer new orders and easing price pressures in the S&P Global Australia Flash Composite PMI for June provide additional support for the RBA keeping the cash rate unchanged in August, per TD Securities
- TD’s forecast sits alongside similarly cautious reads from National Australia Bank, Commonwealth Bank of Australia and Westpac, all of which flagged underlying inflation stabilisation in their own May CPI previews
TD Securities has added its voice to a growing pre-release consensus on Australia’s May consumer price index, forecasting headline inflation easing to 4.2% year-on-year and arguing that the Reserve Bank of Australia is likely to hold rates steady in August regardless of how the data lands.
The TD forecast of 4.2% sits a touch below the market consensus of 4.3% and would represent a meaningful step down from the 4.6% recorded in April. The bank attributed the expected softening primarily to transport costs, which it sees declining on a monthly basis as fuel prices have retreated, and to recreational prices, which it noted typically ease in May given the month’s status as a seasonal lull for domestic travel activity. Neither driver is structural, which frames the deceleration as a welcome but somewhat mechanical relief rather than evidence of a sustained disinflationary trend.
The more striking element of TD’s analysis is its confidence about the August policy outcome. The bank stated explicitly that even if May inflation surprises to the upside, the RBA is inclined to stay on the sidelines at its August meeting. That assessment, if it proves correct, substantially reduces the two-way risk around Wednesday’s release for interest rate markets. A central bank that is hold-biased regardless of a single data point removes the tail scenario that would otherwise generate the most volatility: a hot print forcing an emergency rethink.
TD also pointed to the June S&P Global Australia Flash Composite PMI as a supporting datapoint, noting that new orders softened and price pressures eased in the survey. PMI-based inflation indicators are a forward-looking signal, and their recent direction adds corroboration to the view that the domestic inflation pulse is losing momentum beyond what fuel price movements alone can explain.
TD’s call sits alongside similarly measured forecasts from National Australia Bank, Commonwealth Bank of Australia and Westpac, all of which flagged underlying inflation stabilisation in their own previews. With the four major domestic banks and TD now largely aligned on the direction of travel, the May CPI release has shifted in character from a genuinely open call to a confirmation exercise, with the focus falling less on the headline number and more on whether services and non-tradables components show any fresh signs of stickiness that might complicate the RBA’s calculus further out.
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RBA dates, 2026 … next meeting is 10 and 11 August:
This article was written by Eamonn Sheridan at investinglive.com.
