Hope for home owners as inflation hits four-year low

The monthly figures also revealed a sharp drop in trimmed mean inflation, which removes volatile items, from 2.8 per cent to 2.4 per cent in the month.

It's the smallest increase in the closely watched measure since November 2021.

The trimmed mean is the preferred figure for the Reserve Bank when assessing inflation and the drop has bolstered the prospect of a rate cut when the central bank's board meets in a fortnight.

The figures prompted the Commonwealth Bank, the country's largest mortgage provider, to bring forward its prediction of when the next interest rate cut will be from August to July.

Economists had tipped inflation to remain steady for the month at 2.4 per cent.

The battle against inflation was not over but the figures were a welcome development, Treasurer Jim Chalmers said.

"The progress we're making together on inflation is substantial and it means that it's sustained," he told reporters in Brisbane.

"I didn't say it's mission accomplished, but we are certainly making more progress than was expected."

May's figures were the sixth month in a row both headline inflation and the trimmed mean were in the Reserve Bank's target range of between two and three per cent.

The largest contribution to inflation came from an increase in food and non-alcoholic beverage costs, up 2.9 per cent in the 12 months to May.

Housing was up two per cent and alcohol and tobacco rose 5.9 per cent.

The cost of coffee and tea had helped to drive up the prices of non-alcoholic drinks by 5.2 per cent, the bureau's head of price statistics Michelle Marquardt said.

"Higher prices for coffee drove the rise with adverse weather conditions impacting major overseas coffee bean-growing areas," she said.

But there was only a small rise in holiday travel costs, up 0.6 per cent in the 12 months to May, down from the sharp 5.3 per cent increase recorded for April.

Despite unrest in the Middle East, the price of fuel fell by 10 per cent in the year to May, with petrol prices at their lowest levels since September 2022.

"Across capital cities the average price for unleaded petrol in May was $1.73 per litre," Ms Marquardt said.

"This is 20 cents lower than 12 months ago and significantly below the peak monthly average price of $2.07 per litre in September 2023."

Canstar data insight director Sally Tindall said the inflation numbers had given the Reserve Bank its biggest indication it would be safe to cut in July.

"The fact that the board considered the case for a double cut at the last meeting gives us good insight into its thinking and suggests it will almost certainly consider the case for a cut at the next one," she said.

"While the data opens the door to a cut in July, borrowers should not consider it a done deal. 

"The board could opt to wait for the full quarterly CPI results, which aren't out until the end of July, before locking in another cut."

A 25 basis point cut in interest rates would save mortgage holders $90 a month in repayments on a typical, $600,000 loan.