Oil and milk prices to spill the tea on inflation story

Jacob Shteyman | June 21, 2026

Oil and dairy prices will shed light on Australia’s inflation fight in a big week for domestic economic data.

Australian Bureau of Statistics figures are expected on Wednesday to show headline and underlying inflation edged up in May as the Middle East conflict continued to impact supply chains across the economy.

Importantly, it will reveal how quickly and widely the second-round impacts of higher oil, gas and fertiliser prices were being passed on by businesses.

One item to watch will be milk.

Perishable goods tend to be first to record price increases and the prices of home-brand milk increased in very late April, said ANZ economists Madeline Dunk and Adam Boyton.

“We expect prices to have been a little higher than usual in some of the fresh food expenditure classes, such as milk, fruits and vegetables,” the duo said in a research note.

The Reserve Bank will be alert to the fact that, although oil prices have fallen to lows not seen since March, the flow-on impacts of the energy shock may continue to push consumer prices higher.

In recent days, a tentative truce has seen cargo ships resume transiting through the Strait of Hormuz in greater numbers but supply losses will take many months to recover.

How long the waterway stays open remains unclear.

But even with the Strait firmly shut, oil prices were already trending lower in May.

Commonwealth Bank senior economist Trent Saunders expects annual headline inflation to edge down to 4.1 per cent from 4.2 per cent in April.

Fuel prices are expected to show a fall of 12.3 per cent in the month, subtracting 0.4 percentage points from monthly inflation.

Underlying inflation measures that exclude fuel should be stronger, with the monthly trimmed mean expected to tick up to 3.5 per cent. 

In its latest set of forecasts released in May, the RBA tipped the quarterly trimmed mean to hit 3.8 per cent by the middle of 2026.

Whether it does depends on how quickly and widely cost pressures are passed on by businesses.

“We think the demand environment may make it challenging for businesses to fully pass-on the impact of higher input prices,” Mr Boyton and Ms Dunk said.

Just 11 per cent of firms were increasing their prices because of higher fuel costs, with most absorbing costs, an ABS survey in May found.

If there is little evidence of second-round pass-through in the May data, it could signal inflation undershooting the RBA’s forecast.

Even if the trimmed mean came in line with the RBA’s prediction, the bank would likely stay on hold in August, given signs of slowing economic activity, Mr Boyton and Ms Dunk said.

On Thursday, unemployment is expected to fall back to 4.4 per cent after a surprise jump in the jobless rate in April.

Household spending figures for May, also due on Thursday, will recover from a steep 1.1 per cent fall in April to firm up 0.7 per cent, Westpac economists predict.

But momentum is still softening, with Westpac card tracking data showing activity excluding fuel stalling flat in recent weeks.

Reserve Bank deputy governor Andrew Hauser will address the Economic Society of Australia on Wednesday.

Wall Street was meanwhile closed on Friday for the Juneteenth federal holiday but not before earlier losses were erased thanks to big advances for heavyweight technology companies.

A decline on Wednesday was driven by anticipation the Federal Reserve would likely raise interest rates this year.

The S&P 500 rose 1.1 per cent on Thursday and the Dow industrials added 0.1 per cent. The Nasdaq composite surged 1.9 per cent.

Australian share futures slipped 16 points, or 0.18 per cent, to 5,208.

The S&P/ASX200 fell 82.4 points on Friday, down 0.92 per cent, to 8,828.7, as the broader All Ordinaries lost 79.5 points, or 0.87 per cent, to 9,047.3.