SYDNEY — Australia’s monthly inflation reading was much tamer than expected in May, potentially giving the Reserve Bank of Australia time to sit on the sidelines for a while before it raises interest rates further.

The monthly consumer price index indicator rose 5.6% in the 12 months to May, coming in well below market expectations and the strong rise of 6.8% in April, the Australian Bureau of Statistics said Wednesday.

The annual CPI increase in May is the smallest since April last year, the ABS added.

The data comes just days ahead of a policy meeting at the RBA, with many economists expecting prior to the CPI data that the central bank would announce a further interest rate increase, taking the cumulative rise in the official cash rate to 4.35% from 4.10%.

That certainty is likely to fade.

The data is “soft enough by a good margin to see the RBA halt its series of rate hikes in July and possibly beyond,” said Tony Sycamore, market analyst at IG Australia.

The monthly inflation data has been a key part of recent decisions to tighten policy settings in recent months.

Annually, automotive fuel prices fell 8.0% in May, compared with a rise of 9.5% in April, the ABS said.

The most significant contributors to the annual increase in May were housing costs, which rose 8.4%, and food and non-alcoholic beverages which were 7.9% higher. Still, the housing group annual increase was lower than the April increase of 8.9%.

Rent price increases went up again from an annual rise of 6.1% in April to 6.3% in May, the ABS said.


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