Inflation rose to 4% in the 12 months to May, surpassing economists' expectations of 3.8%, according to the latest ABS data. This marks an increase from April's 3.6%. Key contributors were housing, food, non-alcoholic beverages, and transport.

The RBA now faces pressure to possibly raise interest rates further. While some inflation drivers aren't directly affected by interest rates, the RBA must address the persistently high inflation. The concern is that prolonged high inflation could become embedded in wage and price-setting behaviours, despite the economy's weak growth but high capacity.

Rising housing costs were one of the biggest drivers of inflation, increasing from 3.6% to 4%, the worst result since November. Rent prices are 7.5% higher than a year ago, while the cost of new dwelling purchases is up 4.9%.

The ABS also released the March quarter engineering construction data today, showing its first decline in two years. The volume of engineering construction dropped by 2.3% during the March 2024 quarter, affecting both public and private sector projects. There was a 2.4% fall in public sector engineering construction work and a 2.2% drop in private sector activity. This decline is concerning, given that engineering construction was previously the main source of growth in the industry. All three pillars of construction activity are now moving backwards.